The PNC Financial Services Group
Annual Report 2016

Plain-text annual report

Annual Report for the year ended 30 June 2016 Pioneer Credit Limited ABN 44 103 003 505 Annual Report - 30 June 2016 Lodged with the ASX under Listing Rule 4.3A. Contents Results for announcement to the market Financial Statements i 37 These financial statements are the consolidated financial statements of the Consolidated Entity consisting of Pioneer Credit Limited and its subsidiaries. The financial statements are presented in the Australian currency. Pioneer Credit Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Pioneer Credit Limited Level 6, 108 St Georges Terrace Perth WA 6000 A description of the nature of the Consolidated Entity's operations and its principal activities is included in the review of operations and activities on page 3 of the Annual Report and in the Directors' report on page 11 of the Annual Report, both of which are not part of these financial statements. The financial statements were authorised for issue by the Directors on 19 August 2016. The Directors have the power to amend and reissue the financial statements. Pioneer Credit Limited ABN 44 103 003 505 Appendix 4E Preliminary Final Report for the year ended 30 June 2016 (previous corresponding period 30 June 2015) Results for announcement to the market Key information Revenue from ordinary activities Statutory net profit after taxation for the period attributable to members Operating profit after taxation * 30 June 2016 $’000 47,856 9,450 30 June 2015 $’000 38,788 7,441 9,450 7,808 Change $’000 9,068 2,009 1,642 % 23% 27% 21% * Operating profit after taxation is a financial measure which is not prescribed by Australian Accounting Standards (AAS) and represents the profit under AAS adjusted for specific non-cash and significant items. Dividends per ordinary share / distributions Final 2015 ordinary Interim 2016 ordinary Final 2016 ordinary Amount per security (cents) 6.80 3.60 6.20 Franked amount per security Record date Paid / Payable date 100% 100% 100% 30/09/2015 31/03/2016 30/09/2016 30/10/2015 29/04/2016 31/10/2016 There is no provision for a final dividend in respect of the year ended 30 June 2016. Provisions for dividends to be paid by the Company are recognised in the Consolidated Balance Sheet as a liability and a reduction in retained earnings when the dividend has been declared. A Dividend Reinvestment Plan (DRP) was in operation as from the final dividend for 2015 and applies for all subsequent dividends unless notice is given for its suspension or termination. Last date for receipt of an election notice for participation in the Final 2016 ordinary DRP is 3 October 2016. Financial Statements Full commentary on the figures presented above and on the results for the period and other significant information is provided in the 2016 Media Release, Results Presentation and Consolidated Financial Statements - 30 June 2016, released today. Included in the Consolidated Financial Statements - 30 June 2016 released today are the following;  Consolidated Statement of Comprehensive Income together with notes to the statement    Consolidated Balance Sheet together with notes to the balance sheet Consolidated Statement of Changes in Equity, showing movements Consolidated Statement of Cash Flows together with notes to the statement Pioneer Credit Limited 30 June 2016 Page i Key Ratios Key information Net tangible assets per fully paid ordinary share Basic earnings per fully paid ordinary share Entities over which control has been gained Results for announcement to the market 30 June 2016 (cents) 30 June 2015 (cents) 127.42 20.36 115.69 16.40   Pioneer Credit Limited acquired 100% of Switchmyloan Pty Limited on 2 March 2016. Pioneer Credit Limited established a new 100% owned subsidiary, Credit Place Pty Limited, on 9 June 2016. Investment in associate Pioneer Credit Limited has a 14.10% associate holding in Goldfields Money Limited (GMY) acquired during the last quarter of the financial year ended 30 June 2015. GMY is an ASX listed Authorised Deposit-taking Institution. No audit dispute or qualification on the financial statements The Consolidated Financial Statements at 30 June 2016 and accompanying notes for Pioneer Credit Limited have been audited and are not subject to any qualifications. The Independent Auditor's Report has been provided with the Statements released today. Pioneer Credit Limited 30 June 2016 Page ii Pioneer Credit Limited ABN 44 103 003 505 Annual Report for the year ended 30 June 2016 Contents Corporate Directory Review of operations and activities Directors’ report Corporate Governance Statement Financial Statements Independent auditor’s report to the members Shareholder information 2 3 11 36 37 99 108 Pioneer Credit Limited 30 June 2016 Page 1 Corporate Directory Directors Mr Michael Smith (Chairperson) Mr Keith John Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman-Jones Company Secretary Ms Sue Symmons Notice of annual general meeting Principal registered office in Australia Share registrar Auditor Solicitors Bankers The annual general meeting of Pioneer Credit Limited will be held at 10am on Thursday 27 October 2016 at Level 8, Exchange Tower 2 The Esplanade Perth WA 6000 Level 6 108 St Georges Terrace Perth WA 6000 Link Market Services Limited Level 4 152 St Georges Terrace Perth WA 6000 +61 1300 554 474 PricewaterhouseCoopers Brookfield Place 125 St Georges Terrace Perth WA 6000 +61 8 9238 3000 K&L Gates Level 32 44 St Georges Terrace Perth WA 6000 +61 8 9216 0900 BankWest 300 Murray Street Perth WA 6000 +61 8 9369 6952 Stock exchange listings Pioneer Credit Limited shares are listed on the Australian Securities Exchange (ASX). Website www.pioneercredit.com.au Pioneer Credit Limited 30 June 2016 Page 2 Review of Operations Review of operations and activities Pioneer Credit Limited has achieved another year of strong growth in FY16. In a year when our portfolio of customer accounts exceeded $1 billion for the first time and our customer base reached the significant milestone of 150,000 consumers, we are pleased to report a 23.4% growth in revenue and an increase in operating profit after taxation of 21%. This outstanding result has been delivered through our strong commitment to customer service and our continued focus on acquiring Purchased Debt Portfolios (PDPs) where appropriate returns are achievable, rather than pursuing short-term outcomes. Over the past 12 months we have extended and strengthened relationships with Australia's major banks and other financial institutions, made a strategic acquisition in preparation for the launch of a range of new products, expanded our executive team and strengthened the Company’s balance sheet. Perhaps most importantly, our growth has been achieved with our exemplary compliance record reinforced, providing a real point of difference within a highly competitive sector. In reviewing this report and the underlying Company strategy, it is vital to consider the Group’s ‘Leadership Principles’. It is against these Leadership Principles that Key Performance Indicators in the business are tested for qualitative alignment and it is through the Leadership Principles that Pioneer has experienced its strong financial performance and exceptional brand growth. Pioneer Credit Limited 30 June 2016 Page 3 Review of Operations Operating and financial review The statutory net profit after taxation for the year ended 30 June 2016 was $9.45 million, up 27% on 2015 ($7.44 million). The operating profit after taxation was $9.45 million (2015 $7.81 million). Operating profit after taxation is a financial measure which is not prescribed by Australian Accounting Standards (AAS) and represents the profit after taxation under AAS adjusted for specific non-cash and significant items. The Directors consider operating profit after taxation to reflect the core earnings of the Group. The following table summarises the key reconciling items between statutory profit after taxation and operating profit after taxation. The operating profit after taxation information in the table has not been subject to any specific audit procedures by the Group’s auditor and has been extracted from the notes referenced below from the accompanying financial statements for the year ended 30 June 2016, which have been subject to an audit; refer to page 99 for the auditor’s opinion on the financial statements. Key information Financial Statements Note 30 June 2016 $’000 30 June 2015 $’000 Statutory profit after taxation attributable to the owners 9,450 7,441 Specific non-cash and significant items: Finalisation of indirect taxation, relating to prior years Correction of income taxation relating to prior years Finalisation of settlement of pre-IPO commercial claim Tax effect: Tax effect on the adjustments outlined above that are deductible for income tax purposes Operating profit after taxation Key financial highlights for the year ended 30 June 2016 3 5 3 3 - - - - 355 (8) 181 (161) 9,450 7,808 Statutory net profit after taxation of $9.45m (2015 $7.44m) up 27.00% on prior period equivalent  Cash receipts of $61.87m (2015 $55.63m) up 11.22% on prior period equivalent   Operating profit after taxation of $9.45m (2015 $7.81m) up 21.03% on prior period equivalent  Operating EBIT of $15.40m (2015 $12.08m) up 27.56% on prior period equivalent  Operating EBIT margin of 32.22% (2015 31.21%) in line with expectations of increasing margins  Underlying earnings per share of 19.14 cents up 11.21% on prior period equivalent  Net tangible assets per share 127.42 cents up 10.14% on prior period equivalent Debt Purchase Pioneer continues to adopt a disciplined approach to its debt purchasing program. This resulted in fairly static purchasing during much of FY16 as the Company waited for the impact of what it regarded as overpaying by others in the market. In periods of high pricing, such as those experienced over the past 12 months, debt purchasers are at risk of a higher likelihood of compliance and brand issues for themselves and their vendors as they seek to push consumers harder to repay. This has occurred in recent times with increased scrutiny of customer treatment and some regulatory and consumer driven litigation against purchasers, which has quickly refocussed financial institutions’ risk appetite and seen them seek to increase their engagement with quality purchasers like Pioneer. Pioneer Credit Limited 30 June 2016 Page 4 Review of Operations These changing market dynamics resulted in a softening of competition, and in the last quarter of FY16 Pioneer welcomed a number of new vendor partners. This included a Big 4 bank, an ASX listed investment bank and a number of large quality finance companies. The inclusion of these new vendor partners marked a milestone for Pioneer as it fulfilled a key objective of the Company’s long term strategy to broaden its base of partners. At the same time, as there has been a refocus by major financial institutions on quality, there has been increasingly strong engagement by quality vendors across both operational and corporate strategy and a preference for dealing with companies with strong and growing balance sheets. Pioneer believes it has a unique operational strategy which drives vendor engagement and customer loyalty, a corporate strategy which the vendors are supportive of and a balance sheet that has continued to grow very strongly in recent years. These new vendors and the contracts awarded towards the end of FY16 will underpin Pioneer’s growth in FY17. Portfolio Liquidations and Financial Performance The nature of Pioneer’s business means that its core business growth comes from two primary areas: 1) its existing PDPs of over 150,000 customers representing over $1bn in face value of customer accounts; and 2) the new PDPs that the Company contracts to acquire each year. As a result of the predictability of the performance of its existing portfolios, the Company has strong visibility of its expected financial performance, subject to its ability to invest cautiously through its portfolio purchasing program. This predictability is further enhanced by the focus on only acquiring the highest quality portfolios in Australia, with the significant majority of portfolios being acquired from Big 4 banks. Since its listing on the ASX, Pioneer has developed a range of initiatives which, as it reaches appropriate scale, are expected to contribute to the level of future portfolio liquidations. These initiatives will take some years to play out, consistent with Pioneer’s long-standing approach of working towards a complete understanding of the characteristics of the customer portfolios we purchase, and to ensure we manage and realise the appropriate value from those portfolios. In FY16 Pioneer invested in growing its analytical capabilities, and focussing that intelligence on maximising liquidations from customers with a lower expectation of payment such that they contribute more to profitability in the period. While typically, aged customer accounts require more operational effort and subsequently cost more to liquidate, because of our caution in carrying value they can have a meaningful contribution to profitability. This focus has resulted in stronger liquidations from aged portfolios and has contributed to the Company’s net profit this year. This approach is aligned to our service model; by engaging with more customers we are able to broaden our relationships, provide options and flexibility to those in need and support customers on their journey to financial health. In addition to the strategy of holding financial assets to manage value over the medium to long term, as outlined above, Pioneer Credit also seeks opportunities to sell financial assets, with a view to re-invest with a higher anticipated return. Pioneer’s operational strategy has been highly successful in FY16, ahead of expectations both in terms of gross liquidations and net contribution to revenue. This performance has also been at a time of significant progress with our new business offerings and in a period where some $2m (annualised) of expenses have been added into the corporate overhead largely in the development of our new financial product offerings. Pioneer Credit Limited 30 June 2016 Page 5 Launch of Pioneer Credit Connect During the past year Pioneer Credit formally launched its new growth entity, Pioneer Credit Connect (Connect). The foundation of the Connect business is to: Review of Operations extend the relationship with customers beyond the repayment of their initial account;   provide customers with value based products and education to strengthen their financial health; and  attract new customers to Pioneer Credit to expand our customer base. The first product launched under the Connect brand was a mortgage offering, through ‘Pioneer Broking’, to enable existing Pioneer Credit customers and new customers access to consolidation loans and refinance opportunities for their home or other real estate assets. This service provides the ability for Pioneer to keep ‘line of sight’ of its customers through to settlement of their loan and their account with Pioneer, as well as delivering on our promise to work with the customer to get their finances back on track. As with all new developments at Pioneer, these new initiatives have been approached with discipline and caution. Following an initial trial phase of six months to the end of June 2016, we have now progressed to a full rollout of broking services to our customers. To supplement the growth of this new business line, the Company extended this broking channel to new loans and customers outside of our existing business and in March 2016 Pioneer acquired a leading innovator in the online home loan and refinance space, switchmyloan.com.au (Switch). Switch is a disrupter of traditional broking and holds introducer agreements to 20 financiers, including all Australian major banks. As an introducer, Switch is able to negotiate upfront terms with its panel of financiers and then provide those terms to its customers, generally at a significant saving. This model ties strongly into our commitment to delivering value to our customers and to improving their financial health. Under its introducer model, Switch assesses a customer’s credit characteristics and then matches them to different lenders with appropriate but competing offers before connecting the consumer through to the lender. Switch’s core competencies are principally around digital innovation and an impressive presence on the on line market place. We anticipate a contribution to the Company in FY17 from these exciting new offerings as we roll them out across our eligible customer base. Collaboration with Goldfields Money Pioneer Credit has a 14.1% equity interest in Goldfields Money Limited (Goldfields), an emerging ASX listed Authorised Deposit-taking Institution based in Western Australia. During FY16, following the appointment of a new Chief Executive Officer to Goldfields, Pioneer and Goldfields worked extensively to progress their partnership under their Memorandum of Understanding. During the period, Pioneer commenced providing legal and conveyancing services to Goldfields, and Managing Director Keith John was appointed to the Board of Directors of Goldfields to represent Pioneer shareholders’ investment and to contribute his financial services acumen to the growth of that business. In addition to these developments through the period, Pioneer participated on a pro-rata basis in Goldfields’ $2.12m capital raising. Pioneer is continuing to work with Goldfields on the development of a number of financial products and the launch of Pioneer’s first financial product, a personal loan, which is Pioneer and Goldfields’ first collaboration. Pioneer Credit Limited 30 June 2016 Page 6 Review of Operations Launch of new financial products In June 2015 the Company announced its intention to launch a range of new financial products and has been working towards this initiative since then. Originating financial products offers significant upside potential to Pioneer. In line with our cautious approach, Pioneer has invested significant resources in the analysis and measurement of risks that potentially arise from the introduction of these new products and the development of strategies to minimise that risk to the Company. Through the development of the Company’s strategies and following the appointment of Mr Tony Bird as the Company’s inaugural Chief Risk Officer, a thorough review of all facets of the Company’s new financial products strategy commenced. This resulted in the launch date of those products being extended to enable completion of that review. Pioneer has now written its first personal loans under a white label agreement with its partner, Goldfields, and the launch of a white label credit card is nearing finalisation. It is anticipated that a trial of credit cards will be launched during FY17. Telephony upgrade Pioneer made a significant investment in infrastructure, with the replacement and upgrade of the Company’s telephony system. A highly regarded industry-recognised platform was selected, capable of scaling from our existing requirements of ~360 people across countries and sites to one significantly larger. This ~$1.2m investment provides additional stability to our core infrastructure, access to more sophisticated call distributions and improvements to the functionality of our call recording capabilities, both from a compliance perspective and for learning and development purposes. The new telephony system also captures significantly more data on each phone call and will enable our analytics experts to commence analysis of this data to drive better targeting of contact times, customer telephony attributes driving outcomes and also newer technology, automated voice and text (SMS) capabilities which will lower our operational expenditure. Exemplary Compliance Record Pioneer continues to differentiate itself from its competitors through an unmatched compliance and brand protection program. To this day Pioneer remains the only debt purchaser of significance that has never had: 1) a negative customer determination from its External Dispute Resolution provider (the Credit and Investments Ombudsman); to provide an enforceable undertaking to any regulator; and reportable systemic issues from its practices. 2) 3) This is a unique situation among the debt purchase industry, reflecting the high standards we expect from our staff in their approach to dealing with customers, as reinforced through our training programs. Our success in acquiring purchased debt portfolios at competitive price points demonstrates the growing recognition on the part of Australia’s major banks and financial institutions of partnering with an organisation such as Pioneer, which has an exemplary compliance record and a genuine customer-oriented approach. Australian financial institutions want to ensure they are working with partners who will provide appropriate treatment for their most vulnerable customers, and Pioneer continues to fulfil and exceed this requirement. Pioneer Credit Limited 30 June 2016 Page 7 Review of Operations Leading the industry in customer service Providing strong customer service continues to be at the core of our operational service model, and indeed everything Pioneer stands for. Our experienced and engaged staff are dedicated to delivering outstanding service and customised options to our valued customers. In a highly competitive market, our customer service model clearly differentiates us from our competitors and re- enforces our abilities to our key vendors. It is underpinned by our Leadership Principles, a well defined set of values that our people work and live by. In FY16 Pioneer conducted a number of trial surveys to a sample of Pioneer customers. Many of the responses scored Pioneer a 9 or 10 out of 10, and customer comments included: ‘They were approachable, they listened, they laid out my options clearly and with compassion. They were more than helpful.’ ‘Pioneer have been very helpful and understanding of my circumstances and treated me with respect and dignity.’ ‘Pioneer were literally the first ever business I have dealt with that put ‘listening to me as a human being’ before the standard ‘urgent urgent urgent’ fear-based methods of communicating and trying to arrange payments. It was a breath of fresh air. Thank you.’ The survey also highlighted some opportunities for review which Pioneer has taken on board and will implement in the training and development of our staff. As an extension to the introduction of customer surveys, Pioneer introduced the Net Promoter Score (NPS). NPS is a powerful tool to help measure, monitor and evaluate the relationship customers have with the organisation and how likely they would be to re-engage or recommend it. NPS offers a quantitative method to score and analyse customer responses to the core questions selected. This allows Pioneer to identify customers who require further attention and gives us an opportunity to improve our relationship with them. Overall this will assist us to continually improve the customer experience, as well as recognise our customer service team for providing exceptional service reflected in positive feedback scores. Since inception, Pioneer’s Net Promoter Score has consistently exceeded +14, which is regarded as industry-leading and compares favourably to other companies in the financial services sector. Refreshing our brand Pioneer’s strategy of growing a new consumer and offering a range of financial products to our best customers has led us to refresh our brand from our traditional corporate livery to one that is genuinely customer focussed. Pioneer’s ‘brand essence’ – which is the single most compelling thing we can say about the Pioneer brand that differentiates it from competitor brands, as perceived by the consumer – is TOGETHER. Together is at the core of our personality:  We work together with our customers to help them get back on track financially;  We recognise that every customer’s situation is different and we work together with them to develop a plan  unique to them; Through working together with our customers, sometimes over lengthy periods of time, we get to know our customers and establish an understanding and rapport;  By reinforcing the essence of together with our customers, the relationship strengthens our brand equity and drives customer loyalty; and Pioneer’s staff work together to assist each other achieve our corporate and personal goals.  Our new brand is very approachable and marketable and has been well received by our customers. This will take us through to the next phase of Pioneer’s growth as we seek to develop new consumers. Pioneer Credit Limited 30 June 2016 Page 8 Review of Operations People The Company’s growth has resulted in an expansion in our teams across all sectors of the business. During the past year we welcomed Ms Sue Symmons as General Counsel and Company Secretary and Mr Tony Bird as Chief Risk Officer to the executive team. Sue and Tony both have extensive experience in their area of expertise and their appointments have strengthened the skills and experience of our Key Management Personnel. As an organisation committed to strong and sustainable growth and to excellence, Pioneer continues to invest significantly in its people across all functions of its business. With more than 300 customer service team members across Australia and the Philippines (and 50 corporate and support staff based in Perth), the Company has customised a number of programs and initiatives for team members. These programs and initiatives include a 3 month induction program, a Certificate IV in Leadership and Management to grow inspirational leadership skills of existing leaders and to maximise performance, a Future Leaders Program to develop functional leadership skills for emerging Team Performance Coaches and Assistant Team Performance Coaches, a Certificate IV in Customer Engagement to develop our team’s knowledge and confidence to take customer service to the next level and the Leadership Series to introduce leadership behaviours which are aligned to our Leadership Principles and to foster understanding of what it means to be a leader at Pioneer. Technical Competence workshops are also provided to every team member ensuring skills and abilities are constantly improved. This focus and investment in our customer service team has enabled Pioneer to attract and retain high-performing employees and provide them with high levels of job satisfaction with a corporate culture where engagement with our customers is consistently impressive. Community Engagement Pioneer continues to be very active in supporting the communities in which it operates, with members of our team also making significant contributions to their community in a range of ways. National Hardship Register Pioneer is a founding member of the National Hardship Register. The National Hardship Register is a joint initiative between the Australian Collectors and Debt Buyers Association Limited and members of the business sector, such as Pioneer, to address the serious issue of long-term and severe financial hardship experienced by vulnerable consumers. The purpose of the Register is to protect those consumers who are experiencing severe financial hardship from unnecessary debt collection activity. Pioneer Hearts In FY16, Pioneer launched an exciting community-based volunteer program for its staff called Pioneer Hearts. Pioneer Hearts is a group of like-minded Pioneer staff who share a love for giving back to the community. Its first project in Manila saw the staff supporting a local under-privileged school supplying shoe boxes filled with fun and creative stationery for the kids to use and enjoy. During the year, among other initiatives, our Perth team provided services to the Ear Science Institute Australia to help support the local community hearing bus to reach communities in need. Can4Cancer Pioneer was a major sponsor in Can4Cancer’s Tour de Cure, a three day cycling event which raises funds for cancer research. Financial support was provided as well as staff to support the event over several days. Following our commitment to Tour de Cure, Pioneer ran an internal event in Perth to also help raise awareness and funds for cancer research, called ‘Together Let’s Keep the Wheels Turning’. 85% of our Perth staff participated by keeping 4 spin bikes in motion for 11 hours each, non stop. Partners to our business were also invited to take part in this cause and provided generous donations in their own right. Pioneer Credit Limited 30 June 2016 Page 9 Review of Operations Toybox In December 2015 Pioneer staff proudly supported hundreds of sick children at Princess Margaret Hospital by supplying gifts to be delivered by Santa on Christmas Day. ‘Fill the Christmas Toybox’ saw our team across Australia purchase special gift tags which generated donations to Toybox International, a charity dedicated to helping Australia’s sick and disadvantaged children. The funds were used to purchase a range of toys for kids. Pioneer also sponsored Toy Box International in their participation in the 2015 City to Surf. Pioneer participated in The Shepherd Centre’s ‘Loud Shirt Day’, raising money to help give the gift of sound and speech to deaf children and the Cancer Council’s ‘Australia’s Biggest Morning Tea’, raising funds for cancer research. Capital Management In April 2016 the Company successfully completed a capital raising to institutional and sophisticated investors of 3,415,031 Shares at $1.70 per Share, raising gross proceeds of $5.81m. The purpose of the funds raised was to accelerate the Company’s growth through the acquisition of PDPs. The Group paid a dividend for the first half of the financial year of 3.60 cents per share. A final dividend of 6.20 cents per share has been declared with a record date of 30 September 2016, to be paid on 31 October 2016. A dividend reinvestment plan was adopted in 2015 and remains in place, allowing shareholders to continue to invest in the growth of the Group. The Group aims to optimise its capital structure in a conservative manner. All facility covenants were met throughout the year. At 30 June 2016 the Group had a loan to portfolio asset value ratio of 45.61% compared to the covenant of 55%. The undrawn limit on the senior debt facility was $12.95m and the overdraft facility was unused at 30 June 2016. Continued increase in dividends Reflecting the Company’s continued growth and confidence in its future, Pioneer has declared a final dividend for FY16 of 6.20 cents per share fully franked, with a total fully franked dividend of 9.80 cents per share for FY16, up 14.62% on FY15’s total dividend. The record date for the dividend is 30 September 2016 and the dividend will be paid to shareholders on 31 October 2016. Pioneer's policy is to distribute dividends representing ~ 50% of profit after taxation to shareholders each year, subject to the Directors reviewing and approving such payment. Our dividend policy has delivered growing returns to shareholders while maintaining the capacity and flexibility for the capital requirements of the business. A Dividend Reinvestment Plan (DRP) was adopted in FY15 and remains in place, allowing shareholders to continue to invest in the growth of the Company. Full details of the DRP are available on the Pioneer website. Outlook The Company is pleased to provide guidance to the market for FY17 as follows: Portfolio Investments Profit after Taxation at least $50m at least $10.5m Pioneer Credit Limited 30 June 2016 Page 10 Director’s report Directors’ report Your Directors present their report on the Consolidated Entity consisting of Pioneer Credit Limited and the entities it controlled at the end of, or during, the year ended 30 June 2016. Throughout the report, the Consolidated Entity is referred to as the Group or the Company. Directors The following persons were Directors of Pioneer Credit Limited during the whole of the financial year and up to the date of this report: Mr Michael Smith Mr Keith John Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman-Jones Principal activities Pioneer Credit Limited (Pioneer) is an Australian financial services provider, specialising in acquiring and servicing unsecured retail debt portfolios, the sale of non-core portfolios, brokering and introducing credit products. Pioneer began life as a financial services provider to people in financial difficulty. Today, with more than 150,000 customers Australia-wide, it continues to focus on helping people get their finances back on track and achieve their goals. A key goal at Pioneer, as we work with our customers, is to see them achieve financial recovery and evolve as a ‘new consumer’. There was no significant change in the nature of the principal activities during the year, however during the period Pioneer has continued working towards the launch of a range of credit products for its customers. Ultimately, Pioneer’s aim is to help customers achieve amongst other financial goals, home ownership, using loans it will broker back through our valued banking partners. Dividends Dividends or distributions paid to members during the year were as follows: Ordinary shares – Declared and paid during the year 2016 Total Date of payment Dividend on fully paid ordinary shares held at 30 September 2015 Dividend on fully paid ordinary shares held at 31 March 2016 $3,085,431 $1,651,008 30/10/2015 29/04/2016 Since the end of the financial year the Directors have declared the payment of a final dividend of 6.20 cents per fully paid ordinary share with a record date of 30 September 2016 to be paid on 31 October 2016. Review of operations Information on the operations and financial position of the Group and its business strategies and prospects is set out in the Review of operations and activities on page 3 of this Annual Report. Pioneer Credit Limited 30 June 2016 Page 11 Director’s report Significant changes in the state of affairs There were no significant changes in the state of affairs of the Group during the financial year. Events since the end of the financial year No matter or circumstance has arisen since 30 June 2016 that has significantly affected the Group’s operations, results or state of affairs, or may do so in future years. Environmental regulation Pioneer Credit Limited is not affected by any significant environmental regulations in respect of its operations. Information on Directors Mr Michael Smith Experience and expertise Non-Executive Chairperson A highly experienced company director and executive, Michael was appointed Non-Executive Chairman of Pioneer Credit in February 2014. In addition to his role as Managing Director of strategic marketing consultancy firm Black House, Michael is Non-Executive Chairman of 7- Eleven Stores Pty Ltd, the Lionel Samson Sadleir Group and Starbucks Australia Advisory Board. Michael is also a Non-Executive Director of Creative Partnerships Australia. Michael is a fellow of the Australian Institute of Company Directors and holds a Doctor of Letters (Hon) from the University of Western Australia for his contribution to business and the arts. Michael’s previous roles include Deputy Chairman of Automotive Holdings Group Limited, Chairman of iiNet Limited, Synergy, Verve, Perth International Arts Festival, West Coast Eagles, Indian Pacific Limited and Scotch College. Company Listed Directorships including those held at any time in the previous 3 years iiNet Limited Automotive Holdings Group Ltd From 19 September 2007 to 7 September 2015 From 6 May 2010 to 20 November 2015 Special responsibilities Interests in shares and options Chairman of the Board Chairman of Nomination Committee Chairman of Remuneration Committee Member of Audit and Risk Management Committee Ordinary Shares Unlisted Options 332,002 300,000 Pioneer Credit Limited 30 June 2016 Page 12 Mr Keith John Experience and expertise Company Directorships Listed including those held at any time in the previous 3 years Special responsibilities Interests in shares and rights Director’s report Managing Director Mr John has over 25 years’ experience in the financial services industry, both in Australia and in Asia, and is the founder of Pioneer Credit. He has received numerous awards, including being recognised as one of Western Australia’s most exceptional young business leaders in the WA Business News ’40 Under 40’ Awards. Under his stewardship, Pioneer Credit was included in the BRW Fast 200 at number 26, an award which showcased Australia’s fastest growing businesses (2006). Mr John has a strong interest in philanthropy and through his business and directorships supports numerous charitable organisations across Australia. An industry leader, Mr John serves on a number of industry bodies. In addition to his role as Managing Director of Pioneer Credit, Mr John is Director of Midbridge Investments Pty Ltd, a Non-Executive Director of ASX listed Goldfields Money Limited and a Non-Executive Director of Box International Pty Ltd, publisher of the leading Australian luxury magazine ‘Box Magazine’. Goldfields Money Limited From 27 May 2016 Managing Director Ordinary Shares Indeterminate Rights 8,454,571 150,000 Mr Rob Bransby Experience and expertise Non-Executive Director Mr Bransby was appointed a Non Executive Director of Pioneer Credit in February 2014. A highly experienced financial services executive, Mr Bransby is the CEO and Managing Director of Western Australia’s largest private health insurer, HBF. Rob joined HBF in August 2005 following a successful career in banking, holding a number of senior positions during 25 years at National Australia Bank. In addition to serving on the Pioneer Credit Board, Mr Bransby is President of Private Healthcare Australia (PHA), Non-Executive Director of Synergy and the Australian Digital Health Agency and a Commissioner of the Insurance Commission of WA. In May 2016 Mr Bransby was appointed as a Non-Executive Director of the Commonwealth Bank of Australia Financial advice subsidiary companies, Commonwealth Financial Planning Limited, BW Financial Advice Limited, Count Financial Limited and Financial Wisdom Limited. Goldfields Money Limited From 10 May 2012 to 16 September 2014 and from 20 February 2015 to 27 May 2016. Member of Nomination Committee Member of Remuneration Committee Ordinary Shares 58,432 Company Listed Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares Pioneer Credit Limited 30 June 2016 Page 13 Mr Mark Dutton Experience and expertise Non-Executive Director Mr Dutton has served as a Non-Executive Director of Pioneer Credit since May 2010. Director’s report The founder and director of Banksia Capital, Mr Dutton was previously on the Board of Mineral Resources Limited, a partner at Navis Capital and a director at Foundation Capital and at BancBoston Capital. Prior to embarking on his private equity career, Mr Dutton worked in Audit and Corporate Finance at PricewaterhouseCoopers in the UK and Russia. Mr Dutton is a chartered accountant and a member of the Institute of Chartered Accountants of England & Wales. Mr Dutton also holds an MA in Management Studies and Natural Sciences from the University of Cambridge. Mineral Resources Limited 8 November From 20 November 2014 2007 to Member of Nomination Committee Member of Remuneration Committee Member of Audit and Risk Management Committee Company Listed Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares Ordinary Shares 312,723 Ms Anne Templeman-Jones Experience and expertise Non-Executive Director Ms Templeman-Jones joined the Board in September 2014. Ms Templeman-Jones is a highly regarded professional Non-Executive Director who also serves on the boards of APN News & Media Limited, GUD Holdings Limited and Cuscal Limited, chairing the Audit and Risk Committees, Remuneration Committee and Risk Committees respectively. Ms Templeman-Jones is also the independent Chair of the Commonwealth Bank of Australia financial advice subsidiary companies, Commonwealth Financial Planning Limited, BW Financial Advice Limited, Count Financial Limited and Financial Wisdom Limited. A chartered accountant, Ms Templeman-Jones has a Bachelor of Commerce from UWA, an Executive MBA from AGSM and a Masters in Risk Management from the University of NSW. She is a Fellow of the Australian Institute of Company Directors and a member of the Australian Institute of Chartered Accountants. In a career spanning over 30 years, Ms Templeman-Jones has worked for a number of leading organisations including PwC, OCBC Bank (Bank of Singapore), ANZ and Westpac, where over a seven year period until 2013 she held the positions of Head of Private Bank in NSW and ACT, Head of Strategy and Risk for the Pacific Bank operations, Director Group Risk Reward and Director Strategy in Westpac’s Institutional Bank. Company Listed Directorships including those held at any time in the previous 3 years Special responsibilities Interests in shares Cuscal Limited APN News & Media Limited GUD Holdings Limited Chair of Audit and Risk Management Committee Ordinary Shares Since 20 March 2013 Since 4 June 2013 Since 1 August 2015 Nil Pioneer Credit Limited 30 June 2016 Page 14 Meeting of Directors The number of meetings of the Company's Board of Directors and of each Board committee held during the year ended 30 June 2016, and the number of meetings attended by each Director were: Director’s report Name Board Meetings Audit and Risk Committee Meetings Remuneration Nomination Mr Michael Smith Mr Keith John* Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman-Jones Held Number of meetings held during the year and during the time the Director held office or was a member of the committee Held Attended Held Attended Held Attended Held 3 16 * 16 2 16 3 16 * 16 Attended 16 16 15 15 15 3 * 3 3 * 5 * * 5 5 5 * * 5 5 0 * 0 0 * 0 * 0 0 * * Not a member of the relevant committee Company Secretary Ms Sue Symmons joined Pioneer Credit as General Counsel and Company Secretary, effective 1 October 2015. Ms Symmons has over 25 years’ experience as a company secretary including positions with Heytesbury Pty Ltd and ASX listed Evans & Tate Limited, Automotive Holdings Group Limited and Helloworld Limited. Ms Symmons holds a Bachelor of Commerce from Curtin University and a Master of Business Law from the University of NSW and is a member of the Governance Institute of Australia and Australian Institute of Company Directors. Prior to Sue’s appointment, Mr Leslie Crockett held the position of Chief Financial Officer and Company Secretary. Mr Crockett joined Pioneer Credit in December 2012, was appointed Company Secretary in early 2013 and resigned as Company Secretary on 1 October 2015. Mr Crockett remains as Chief Financial Officer. A chartered accountant, Leslie has experience working across a range of industries including financial services, property development, construction, retail and manufacturing covering jurisdictions in Europe, the United Kingdom, Africa, the USA and the Caribbean. Prior to joining Pioneer Credit he was a divisional finance executive for an ASX100 listed group. Leslie qualified as a chartered accountant with Deloitte, where he provided audit, consulting, financial advisory, risk management and tax services. He holds a Bachelor of Accounting from the University of South Africa and business qualifications from Melbourne Business School. Pioneer Credit Limited 30 June 2016 Page 15 Remuneration report 1 2 3 4 5 6 7 8 9 Overview Remuneration Governance Executive Remuneration Non-executive director arrangements Statutory Remuneration Disclosures Equity instruments held by Key Management Personnel Terms and conditions of share-based payment arrangements Loans given to Key Management Personnel Other transactions with Key Management Personnel Director’s report Remuneration report 16 17 18 23 24 27 29 31 31 This remuneration report explains the Board’s approach to executive remuneration, performance and remuneration outcomes for Pioneer Credit and its Key Management Personnel (KMP) for the year ended 30 June 2016. 1. Overview 1.1. Key Management Personnel KMP encompasses all directors as well as those executives who have specific responsibility for planning, directing and controlling material activities of the Company. In this report, ‘senior executives’ refers to the KMP excluding the Non-Executive Directors. The information provided in this remuneration report has been audited as required by Section 308(3C) of the Corporations Act 2001. List of KMP Directors Mr Michael Smith Mr Keith John Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman-Jones Senior Executives Ms Lisa Stedman Mr Leslie Crockett Mr Tony Bird Ms Sue Symmons Independent Non-Executive Chairman Non-Independent Executive Managing Director Independent Non-Executive Director Non-Independent Non-Executive Director Independent Non-Executive Director Chief Operating Officer Chief Financial Officer Chief Risk Officer General Counsel and Company Secretary 1.2. Remuneration Policy and Link to Performance In considering the Company’s Remuneration Policy and its levels of remuneration for senior executives, the Remuneration Committee seeks to make recommendations which:  motivate executive Directors and senior executives to ensure the long term sustainable growth of the    Company within an appropriate control framework; demonstrates a clear correlation between senior executives’ performance and remuneration; aligns the interests of key leadership with the long-term interests of the Company’s shareholders; and prohibits executives from entering into transactions or arrangements which limit the economic risk of participating in unvested entitlements. Pioneer Credit Limited 30 June 2016 Page 16 Director’s report Remuneration report The Company is currently reviewing its executive remuneration framework, particularly in relation to its senior executives. The objective is to critically evaluate the executive incentive program to ensure that its structure:     sufficiently motivates and incentivises senior executives; supports the retention of senior executives; continues to drive long term Shareholder value creation; and aligns broadly with the expectations of Shareholders, while at the same time not hindering the strategic objectives of the Company. The Company will consult with remuneration consultants in early FY17 to assist them in achieving its objectives. 2. Remuneration Governance 2.1. Role of the Remuneration Committee The Remuneration Committee is a committee of the Board. It is primarily responsible for providing recommendations to the Board on:     remuneration packages for Directors and senior executives; incentive and equity-based remuneration plans for executive Directors and senior executives; appropriate performance hurdles and other key performance indicators (KPIs) to ensure remuneration is aligned to shareholder expectations; and the appropriateness of total payments proposed to Directors and senior executives. The Corporate Governance Statement and the Remuneration Committee Charter provide further information on the role of this committee. These documents are available on the Company’s website (www.pioneercredit.com.au). The Committee’s objective is to ensure that remuneration policies and structures are fair to both the Company and its employees and competitive in the marketplace such that the Company continues to be able to attract and retain quality individuals and so that those individuals are aligned with the long-term interests of the Company’s shareholders. The Committee reviews and determines remuneration policy and structure annually to ensure it remains aligned to business needs and meets our remuneration principles. From time to time, the committee also engages external remuneration consultants to assist with this review - see 2.2 below for further information. In particular, the Board aims to ensure that remuneration practices are:      competitive and reasonable, enabling the Company to attract and retain quality talent; aligned to the Company’s strategic and business objectives; developed for creation of long term shareholder value; transparent and easily understood by all stakeholders; and acceptable to shareholders. Pioneer Credit Limited 30 June 2016 Page 17 Director’s report Remuneration report 2.2. Use of remuneration consultants To ensure the Remuneration Committee is fully informed when making remuneration decisions, the Remuneration Committee will periodically seek external remuneration advice. As mentioned above, the Company will consult with remuneration consultants during FY17 to review its executive remuneration framework, particularly in relation to its KMP. Any such appointment will be made in accordance with the ASX Corporate Governance Principles and Recommendations and will be made free from undue influence from any members of KMP. As reported in the FY15 Annual Report, it is the Company’s intention to move all key executives from the 25th percentile to the 50th percentile on the basis that the executives continue to deliver at least appropriate value to the Company and that the Company continues to meet its financial and other goals. The Remuneration Committee continues to consider this intention when awarding remuneration increases to its key executives. Fees paid to KMP remained unchanged during FY16. The Remuneration Committee will consider Chairman and Director fees following consultation with remuneration consultants in FY17. 2.3. Pioneer Credit’s Securities Trading Policy The Pioneer Credit Securities Trading Policy imposes trading restrictions on all Pioneer Credit employees who are considered to be in possession of ‘inside information’ and additional restrictions in the form of trading windows for executives and directors. Directors and members of the executive management team are prohibited from trading in Company shares, except in a 30 day period commencing 7 days after the release of the final and half yearly financial results and in a 30 day period commencing 7 days after the Annual General Meeting. Pioneer Credit prohibits KMP from entering into contracts to hedge their exposure to any securities that may be awarded as part of their remuneration package. 3. Executive Remuneration 3.1. Executive Remuneration Model The Board seeks to ensure its remuneration strategy supports and drives the achievement of Pioneer Credit’s business strategy. Its aim is to ensure that remuneration outcomes are linked to the Company’s performance and aligned with shareholder outcomes. To ensure that executive remuneration is aligned to Company performance, a reasonable portion of the executives’ target pay is ‘at risk’. Executives receive their base salary and benefits structured as a total employment cost package. Pioneer Credit Limited 30 June 2016 Page 18 The diagram below shows how the Remuneration Framework seeks to align remuneration outcomes with Pioneer Credit’s vision, ultimately delivering sustainable long term wealth creation for shareholders. Director’s report Remuneration report To be the leading customer service business in financial services that drives customer Pioneer Credit Vision: engagement and delivers shareholder satisfaction through high integrity, high service standards and core capabilities in customer relationship management and knowledge. Remuneration Strategy Retain key executive talent Align executive reward with achievement of business vision. Pioneer Credit continues to deliver strong performance through a consistent, committed and highly talented senior executive team. KPIs are to be focussed on challenging financial and non- financial measures. Short term and long term components of remuneration that are ‘at risk’ and based on performance and outcomes. Remuneration Framework Fixed remuneration Variable ‘at risk’ remuneration Long Term Incentive (LTI) The Company recognises the need to appropriately incentivise its executives through an LTI. To be set at no more than market median for similar organisations by reference to industry, market capitalisation, revenues, employees, geographies and roles using external benchmark data. Consideration is given to the employee’s experience and skills. Performance metrics - Nil Short Term Incentive (STI) Balanced score card approach focusing on financial and non financial KPIs based on specific individual performance goals including:  profit after tax;  compliance/regulatory performance;  project performance;  peer and direct report performance; and assessment of Pioneer Credit’s Leadership Principles.  Potential value – up to 25% of fixed remuneration. Retirement benefits are delivered under the Superannuation Guarantee (Administration) Act 1992. 3.2. Fixed Remuneration Fixed remuneration is made up of base remuneration and superannuation. Base remuneration includes cash salary and any salary sacrificed items. Base salary is reviewed at least annually or on promotion or where there is a significant change in role responsibilities and is benchmarked against the criteria outlined in the Remuneration Framework above. There is no guaranteed base salary increase included in any executives’ contracts. Pioneer Credit Limited 30 June 2016 Page 19 Director’s report Remuneration report No increase in fixed remuneration was awarded to senior executives for FY16 although the Company re-asserts its intention to move senior executives’ remuneration from the 25th percentile to the 50th percentile. 3.3. Short Term Incentive The STI component of remuneration currently consists of a cash bonus that is focused on a balance scorecard approach, with financial and non financial measures focused on delivery of the critical business objectives of Pioneer Credit. The average amount awarded in STI for FY16 was 70%. See specific awards set out in the table on page 21. 3.3.1. About Pioneer Credit’s Short Term Incentive (STI) Objective The STI plan rewards executives for the achievement of objectives directly linked to Pioneer Credit’s business strategy that is focussed on growth and consolidation. Participation Participation in the STI plan is at the discretion of the Board. STI opportunity The maximum STI available to each executive is set at a level based on role, responsibilities and market data for the achievement of stretch targets against specific KPIs. The target STI opportunity for each senior executive is listed at 3.3.3 as an absolute dollar amount and as a percentage of the executive’s fixed base. Performance Period The performance period was 1 July 2015 to 30 June 2016. Link between performance and reward Each period KPIs are selected using a balanced scorecard approach of both financial and non financial measures of performance. The KPIs are selected based on what needs to be achieved over the performance period to achieve the business strategy over the longer term, but varied to reflect individual executive roles and responsibilities. The weighting of each KPI is set for each performance period based on the specific business targets to be focussed on. Assessment of performance The Board reviews and approves the performance assessment and STI payments for the Managing Director and all other senior executives. Payment method STI payments are delivered in cash. Pioneer Credit Limited 30 June 2016 Page 20 Director’s report Remuneration report 3.3.2. STI KPIs and performance – full year 1 July 2015 to 30 June 2016 Feature Max opportunity Performance metrics Description Senior Executive: 25% of fixed remuneration Key Performance Indicators are aligned to our strategic priorities of shareholder value, evaluation of financial performance on a total return basis, operational excellence, risk management and appropriate long term strategic goals Metric Leadership and Growth Initiatives Weighting Range 20% Financial Performance evaluated on a total return basis Project performance 30-60% 10% Risk and Compliance 10-20% Target Rationale for selection Board’s assessment of leadership and strategy delivery Management of value, operating profit and customer payments performance Achievement of milestones Regulatory compliance Long term strategic growth and building of a culture of excellence through the Leadership Principles Sustainable management of value and delivery of optimal financial performance Alignment to long term strategy. Differentiation through compliance excellence and appropriate management of risk Delivery of STI Board discretion The STI is payable on release of the audited financial year results The Board reserves the right to amend, vary or revoke the terms of any incentive plan from time to time, at its sole and absolute discretion 3.3.3. 2016 STI remuneration outcomes Executive Target STI opportunity¹ $105,500 $73,000 $70,000 $65,000 As a % of fixed remuneration 25% 25% 25% 25% KR John L Stedman LK Crockett T Bird ¹ Target opportunity represents the full year target STI, outcome would be pro rata where relevant. $84,400 $51,100 $56,000 $30,042 80% 70% 80% 70% 20% 30% 20% 30% STI outcome % achieved % forfeited 3.4. Long-term incentives 3.4.1. About Pioneer Credit’s long term incentive At the Annual General Meeting held on 29 October 2014, shareholders approved the Pioneer Credit Equity Incentive Plan (the ‘Plan’). Objective The Plan provides eligible participants with an incentive plan that recognises ongoing contribution to the achievement by the Company of its strategic goals, thereby encouraging the mutual interdependence of participants and the Company and to provide a means of attracting and retaining skilled and experienced employees. Pioneer Credit Limited 30 June 2016 Page 21 Director’s report Remuneration report Participation Participation in the LTI Plan is at the discretion of the Board. LTI opportunity Subject to the achievement of performance conditions, participants may be entitled to be granted Performance Rights and / or Indeterminate Rights as approved by the Board. Assessment of performance The Board reviews and approves the performance assessment and LTI payments for the senior executives. Payment method LTI payments are delivered in Performance Rights which vest into Shares on the achievement of certain performance criteria or, Indeterminate Rights, where the Board, in their absolute and unfettered discretion, make a cash payment equivalent to the number of vested Indeterminate Rights multiplied by the then value of the Company’s share price. 3.4.2. Long term incentive awards in place during the year No long term incentive award was made for FY16. A LTI award was made under the Plan on 1 September 2015 for the FY15 year as follows: Instrument Quantum Grant Date Key performance measures Performance period Dividends Fair Value, Grant date and Vesting period Performance rights / indeterminate rights to acquire ordinary Pioneer shares¹. The number of performance / indeterminate rights granted to participants was 450,000 1 September 2015 Financial performance on a total return basis Individual assessment against Leadership Principles FY15 No dividends or dividend equivalents are paid on performance rights / indeterminate rights $1.6009 $1.5155 $1.4347 1 July 2017 1 July 2018 1 July 2019 the Company’s 60% 25% 15% 50% 50% ¹ Indeterminate rights may be, at the Board’s absolute and unfettered discretion, paid by making a cash payment equivalent to the number of vested Indeterminate Rights multiplied by the then value of the Company’s Share price. Pioneer Credit Limited 30 June 2016 Page 22 Director’s report Remuneration report 4. Non-executive director arrangements Pioneer Credit’s policy is to remunerate Non-Executive Directors at a fixed fee for time, commitment and responsibilities. Remuneration for Non-Executive Directors is not linked to individual performance. On appointment to the Board all Non-Executive Directors enter into a Service Agreement with the Company in the form of a letter of appointment summarising the Board’s policies and the appointment terms including remuneration relevant to the office of Director. A copy of the policy and procedure for selection and (re)appointment of Directors can be found on our Corporate Governance website. 4.1. Non-executive director remuneration for 2016 Name Mr Michael Smith Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman-Jones Fixed remuneration $ 120,000 70,000 70,000 70,000 Superannuation $ 11,400 6,650 6,650 6,650 Total $ 131,400 76,650 76,650 76,650 A Non-Executive Director is not entitled to receive performance based remuneration. They may be entitled to fees or other amounts, as the Board determines, where they perform duties outside the scope of the ordinary duties of a Director. They may also be reimbursed for out of pocket expenses incurred. No such payments were made during the reporting period. Fees will be reviewed annually by the Remuneration Committee taking into account comparable roles and independently generated market data. From time to time the Company may grant equity based incentives to Non-Executive Directors. The grant of an equity based incentive is designed to attract and retain suitably qualified Non-Executive Directors. On his appointment on 7 February 2014, Mr Michael Smith was issued with 300,000 Unlisted Options, the terms and conditions of which are set out at 7.2 below. 50,000 of these Unlisted Options vested on 4 April 2016. Unexercised Options expire two years after vesting. Pioneer Credit Limited 30 June 2016 Page 23 5. Statutory Remuneration Disclosures The following table showing details of the remuneration expense recognised for KMP for the current and previous financial year has been measured in accordance with the requirements of accounting standards. 5.1. Statutory Remuneration Tables Director’s report Remuneration report Non- monetary benefits Fixed remuneration Annual and long service leave Post- employment benefits Cash bonus Variable remuneration Post- employment benefits Options Total Non-executive Directors Year Cash salary Mr Michael Smith 2016 2015 120,923 120,461 Mr Rob Bransby 70,539 2016 70,269 2015 Mr Mark Dutton 70,539 2016 70,269 2015 - - - - - - Ms Anne Templeman-Jones ¹ 70,539 2016 54,115 2015 - - Total 2016 2015 332,540 315,114 - - Executive Director Year Cash salary Mr Keith John 2016 2015 425,246 361,685 - - - - - - - - - - 11,488 11,444 6,701 6,676 6,701 6,676 6,701 5,141 31,591 29,937 - - - - - - - - - - - - - - - - - - - - 29,031 30,068 161,442 161,973 - - - - - - 77,240 76,945 77,240 76,945 77,240 59,256 29,031 30,068 393,162 375,119 Rights Total Non- monetary benefits Fixed remuneration Annual and long service leave Post- employment benefits Cash bonus Variable remuneration Post- employment benefits 10,920 5,280 13,484 32,321 37,516 28,794 84,400 94,950 8,018 9,020 89,243 - 668,827 532,050 Pioneer Credit Limited 30 June 2016 Page 24 Director’s report Remuneration report Post- employment benefits Cash bonus Variable remuneration Post- employment benefits Rights Total Other Key Management Personnel Year Non- monetary benefits Fixed remuneration Annual and long service leave 10,920 10,560 10,920 5,280 8,564 1,577 (624) 6,312 27,326 23,409 51,100 58,400 26,180 25,255 56,000 63,000 - - - - 12,153 - 10,260 - 30,042 - 8,520 - 14,469 - - - 4,855 5,548 5,320 5,985 2,854 - - - 89,243 - 482,885 345,909 89,243 - 465,650 371,678 - - - - 163,309 - 175,237 - 32,760 21,120 42,097 40,210 115,751 77,458 221,542 216,350 21,047 20,553 267,729 1,955,908 - 1,249,637 Cash salary Ms Lisa Stedman 290,877 2016 246,415 2015 Mr Leslie Crockett 278,611 2016 265,846 2015 Mr Tony Bird² 2016 2015 108,000 - Ms Sue Symmons³ 152,248 2016 - 2015 Total 2016 1,254,982 873,946 2015 Total KMP remuneration expensed Year Cash salary 2016 1,587,522 2015 1,189,060 Non- monetary benefits Fixed remuneration Annual and long service leave 42,097 40,210 32,760 21,120 Post- employment benefits Cash bonus Variable remuneration Post- employment benefits Options - Rights Total 147,342 107,395 221,542 216,350 21,047 20,553 296,760 2,349,070 30,068 1,624,756 ¹ ² ³ Ms Anne Templeman-Jones was appointed a Director on 23 September 2014 Mr Tony Bird commenced in Perth as a member of Key Management Personnel on 2 February 2016 Ms Sue Symmons commenced in Perth as a member of Key Management Personnel effective 1 October 2015 There was no increase in the base salary for Non-Executive Directors or senior executives during the year. Pioneer Credit Limited 30 June 2016 Page 25 Director’s report Remuneration report 5.2. Relative proportions of fixed vs variable remuneration expense The following table shows the relative proportions of remuneration that are linked to performance and those that are fixed, based on the amounts disclosed as statutory remuneration expense. Name Executive Director Mr Keith John Other Key Management Personnel Ms Lisa Stedman Mr Leslie Crockett Mr Tony Bird Ms Sue Symmons 2016 2016 2016 2016 2016 Fixed remuneration At risk – STI At risk – LTI 73% 70% 68% 80% 100% 14% 12% 13% 20% - 13% 18% 19% - - 5.3. Performance based remuneration granted and forfeited during the year The table below shows for each KMP how much of their STI cash bonus was awarded and how much was forfeited. Name Mr Keith John Ms Lisa Stedman Mr Leslie Crockett Mr Tony Bird ¹ Represents the pro-rata opportunity from commencement date. Total opportunity $ 105,500 73,000 70,000 42,918¹ Awarded % 80% 70% 80% 70% Forfeited % 20% 30% 20% 30% Pioneer Credit Limited 30 June 2016 Page 26 Director’s report Remuneration report 5.4. Contractual arrangements with executive KMP The terms of employment for Company executives are formalised in individual service agreements. The Service Agreements specify remuneration, benefits and notice period. Participation in any STI or LTI plan as previously disclosed is subject to the Board’s discretion. There are no benefits payable to any executive on termination. Significant provisions of each Service Agreement during FY16 are set out below. Employee Position Salary Mr Keith John Managing Director $422,000 per annum plus superannuation Ms Lisa Stedman Chief Operating Officer $292,000 per annum plus Mr Leslie Crockett Chief Financial Officer Mr Tony Bird Chief Risk Officer superannuation $280,000 per annum plus superannuation $260,000 per annum plus superannuation Ms Sue Symmons General Counsel and Company Secretary $200,000 per annum plus superannuation Term of agreement and notice period Continuing agreement with 12 months’ notice by either party to the Employment Agreement Continuing agreement with 6 months’ notice by either party to the Employment Agreement Continuing agreement with 6 months’ notice by either party to the Employment Agreement Continuing agreement with 6 months’ notice by either party to the Employment Agreement Continuing agreement with 3 months’ notice by either party to the Employment Agreement 6. Equity instruments held by Key Management Personnel The tables below show the number of: options over ordinary shares; performance rights / indeterminate rights; and shares    in the Company that were held during the financial year by KMP, including their close family members and entities related to them. There were no shares or options granted during the reporting period as compensation. Pioneer Credit Limited 30 June 2016 Page 27 Director’s report Remuneration report Option holdings Name Mr Michael Smith Issued balance at the start of the year 300,000 Granted as compensation Vested Exercised - 50,000 - Balance at the end of the year 300,000 Vested and exercise- able 50,000 Unvested 250,000 Performance rights / indeterminate rights Name Balance at the start of the year Other changes during the year Balance at the end of the year Held nominally Executive Director Mr Keith John Other Key Management Personnel Ms Lisa Stedman Mr Leslie Crockett Mr Tony Bird Ms Sue Symmons - - - - - +150,000 +150,000 +150,000 - - 150,000 150,000 150,000 - - - - - - - Share holdings Name Balance at the start of the year Other changes during the year Balance at the end of the year Held nominally Non-Executive Directors Mr Michael Smith Mr Rob Bransby Mr Mark Dutton Ms Anne Templeman Jones Executive Director Mr Keith John Other Key Management Personnel Ms Lisa Stedman Mr Leslie Crockett Mr Tony Bird Ms Sue Symmons 62,500 35,000 306,483 - +269,502 +23,432 +6,240 - 332,002 58,432 312,723 - 332,002 58,432 312,723 - 8,213,216 +241,355 8,454,571 8,454,571 275,000 163,984 - - -205,000 - +24,750 - 70,000 163,984 24,750 - - 13,984 - - Pioneer Credit Limited 30 June 2016 Page 28 Director’s report Remuneration report 7. Terms and conditions of share-based payment arrangements 7.1. Performance Rights and Indeterminate Rights Pioneer Credit issued Performance Rights and Indeterminate Rights to senior executives on 1 September 2015 for the FY15 year. The sum of $267,729 (2015 $Nil) has been recognised in FY16 as a share based payment with respect to these rights. The terms and conditions of the performance rights and indeterminate rights issued during FY16 are: a) Performance Rights that vest to the extent permitted in accordance with the Plan Rules will be converted on a one-for-one basis within a reasonable period of time at nil cost to the participant. Indeterminate Rights that vest to the extent permitted in accordance with the Plan Rules may be, at the Board’s absolute and unfettered discretion, paid by making a cash payment equivalent to the number of vested Indeterminate Rights multiplied by the then value of the Company’s Share price. b) The number of rights granted to any participant were determined by reference to achievement of both Target 1 and Target 2 (together the Performance Condition) as described below. Target 1 (50% of the Performance Condition): The financial performance of the Company for the 12 month financial period ended 30 June 2015 of a $6,600,000 operating profit after taxation as approved by the Board for release to the ASX (in the form of audited financial results). Target 2 (50% of the Performance Condition): Individual assessment against the Company’s Leadership Principles. In respect of assessing an individual’s performance, there is a binary determination in respect of each of the six principles (i.e. the Company’s expectation has either been met or not been met). Assessment of the Managing Director’s performance against the Leadership Principles will be reviewed by the Remuneration Committee and will be reported to the Board for its approval. Assessment of the Chief Financial Officer’s and Chief Operating Officer’s performance against the Leadership Principles will be reviewed by the Remuneration Committee or its delegate. Together, Target 1 and Target 2 comprise the total ‘Performance Condition’ and are co-dependent.  Target 1 acts as the ‘first gate’ in respect of the Award – i.e. Target 1 must be met prior to any Rights being granted. Target 2 acts as the ‘second gate’ in respect of the FY2015 Managing Director’s Award in that the Participant must also meet the Company’s expectation on four or more of the Leadership Principles against which he is assessed prior to any Rights being granted. Target 1 and Target 2 have an equal weighting as follows:   o Achievement of Target 1 (and subject to meeting Target 2 conditions): 50% of the Total Available Rights will be granted. o Achievement of Target 2 (and subject to meeting Target 1 conditions): up to 50% of the Total c) Rights will vest in accordance with the following schedule (each a ‘Vesting Date’): Available Rights will be granted. base Date plus 3 years whereby 60% Rights will vest; base Date plus 4 years whereby 25% Rights will vest; and base Date plus 5 years whereby 15% Rights will vest,    where the Base Date is 1 July 2014 (collectively ‘Vesting Conditions’) and provided the Participant remains employed by the Group at a respective Vesting Date. Pioneer Credit Limited 30 June 2016 Page 29 Director’s report Remuneration report 7.2. Unlisted Options Pioneer Credit has 300,000 options on issue with respect to the 2014 grant to Mr Michael Smith. The sum of $29,031 (2015 $30,068) has been recognised as a share based payment with respect to these options. The key terms and conditions of the Options are: a) Each Option will entitle the Option holder to purchase one Share for the exercise price (refer clause e) below) subject to satisfaction of the vesting conditions (refer clause b) below). b) The vesting conditions are as follows: i. ii. 50,000 Options vest on the second anniversary of the Offer (now vested); and 250,000 Options vest on the third anniversary of the Offer. c) Options may be forfeited upon termination of Mr Smith’s position as a Director of Pioneer Credit. d) Unexercised Options will expire two years after vesting. e) The exercise price of each Option is 20% greater than the Offer Price. The Offer Price is the price of the securities sold by Pioneer Credit in its Initial Public Offer. The price was $1.60 per share; the exercise price of each Option is $1.92. f) The Option holder may not sell, assign, transfer or otherwise deal with, or grant a Security Interest over an Option except with the written consent of Pioneer Credit. g) Vested Options that have not expired may be exercised by paying the exercise price (refer clause e) above) to or as directed by Pioneer Credit. Upon vesting the Options may not be exercised until the first business day following that time which the Fair Market Value of the underlying Share exceeds the exercise price. h) The Board may declare that all or a specified number of any unvested Options which have not expired immediately vest if, in the opinion of the Board a Change of Control has occurred, or is likely to occur. The Board may declare that all or a specified number of any unvested Options which have not expired immediately vest if in the opinion of the Board any person or corporation has a relevant interest (as defined in the Corporations Act) in more than 90% of the Shares. The Board may in its absolute discretion declare the vesting of an Option during such period as the Board determines where: j) i) i. ii. iii. Pioneer Credit passes a resolution for the voluntary winding up of Pioneer Credit; an order is made for the compulsory winding up of Pioneer Credit; or Pioneer Credit passes a resolution in accordance with Listing Rule 11.2 to dispose of its main undertaking. k) l) If there is any internal reconstruction, reorganisation or acquisition of Pioneer Credit which does not involve a significant change in the identity of the ultimate shareholders of Pioneer Credit, this clause applies to any Option which has not vested by the day the reconstruction takes effect. The Board may declare in its sole discretion whether and to what extent Options will vest. In the event of any reorganisation (including consolidation, sub-division, reduction, return or cancellation) of the issued capital of Pioneer Credit, the rights attaching to the Options will be varied to comply with ASX Listing Rules. m) An Option holder is not entitled to participate in any new issue of securities of Pioneer Credit as a result of holding the Options. n) Subject to the terms of the Options and the ASX Listing Rules, the Board may at any time by written instrument, amend all or any of the provisions of terms of the Options. o) Any amendment to the provisions of these terms must not materially reduce an Option Holder’s rights before the date of the amendment, unless the amendment is introduced primarily: i. ii. for the purpose of complying with or conforming to present or future State, Territory or Commonwealth legislation, the ASX Listing Rules or the constitution of Pioneer Credit; or to correct any manifest error, or mistake. Subject to these terms, any amendment made under this rule may be given retrospective effect as specified in the written instrument by which the amendment is made. Pioneer Credit Limited 30 June 2016 Page 30 Director’s report Remuneration report For the purposes of this section, the following terms have the meaning set out below: Change of Control means: a) in the case of a takeover bid (as defined in section 9 of the Corporations Act), an offer by a party who previously had voting power of less than 50% in Pioneer Credit obtains voting power of more than 50%; b) a Court approves under section 411(4)(b) of the Corporations Act, a proposed compromise or arrangement for the purposes of or in connection with a scheme for the reconstruction of Pioneer Credit or its amalgamation with any other company or companies; c) any person becomes bound or entitled to acquire shares in Pioneer Credit under: i. ii. iii. section 414 of the Corporations Act (compulsory acquisition following a scheme or contract); Chapter 6A of the Corporations Act (compulsory acquisition of securities); or a selective capital reduction is approved by shareholders of Pioneer Credit pursuant to section 256C(2) of the Corporations Act which results in a person who previously had voting power of less than 50% in Pioneer Credit obtaining voting power of more than 50%; or in any other case, a person obtains voting power in Pioneer Credit which the Board (which for the avoidance of doubt will comprise those Directors holding office immediately prior to the person acquiring that voting power) determines, acting in good faith and in accordance with their fiduciary duties, is sufficient to control the composition of the Board. Fair Market Value means the last price at which the underlying Shares traded on the ASX during a regular trading session. Security Interest means a mortgage, charge, pledge, lien or other encumbrance of any nature. 8. Loans given to Key Management Personnel No loans were made to Key Management Personnel during the financial year. 9. Other transactions with Key Management Personnel Leases entered into with related parties The Managing Director, Mr Keith John is a beneficiary of The John Family Primary Investments Trust and the sole Director and Secretary of Avy Nominees Pty Limited, which is trustee of The John Family Primary Investments Trust (JFPIT). JFPIT is the owner of three premises which are leased by the Company. The premises, the subject of the leases, are situated at 118 Royal Street, East Perth, 188 Bennett Street, East Perth and 190 Bennett Street, East Perth. The lease contracts are at arm’s length. For the year ended 30 June 2016 the total amount of $206,160 has been paid to JFPIT in respect of the leases. The leases for 118 Royal Street, East Perth and 188 Bennett Street, East Perth expired on 31 December 2015 and were not renewed. The lease for 190 Bennett Street, East Perth expired on 31 December 2015 and was renewed at arm’s length terms. Design consulting agreement The Managing Director, Mr Keith John is a beneficiary of The John Family Building and Design Trust and the sole Director and Secretary of Avy Nominees Pty Limited, which is trustee of The John Family Building and Design Trust trading as Alana John Design (AJD). The Company and AJD were parties to an agreement for design and project management services for the commercial fit-out of the Company’s office premises. Following completion of the fit-out of the Company’s premises the agreement with AJD was finalised on 31 July 2015.For the year ended 30 June 2016 the total amount of $16,902 has been paid for the services. Pioneer Credit Limited 30 June 2016 Page 31 Director’s report Shares under option Unissued ordinary shares of Pioneer Credit Limited under option at the date of the report are as follows: Name Mr Michael Smith Mr Michael Smith Date options granted 7 February 2014 7 February 2014 Exercise price $1.92 $1.92 Vesting date 4 April 2016 4 April 2017 Number under option 50,000 250,000 Unexercised Options expire two years after vesting. Shares issued on the exercise of options No shares were issued in the reporting period on the exercise of options. Insurance of officers During the financial year, Pioneer Credit Limited paid a premium of $45,167 (2015 $43,833) to insure the Directors and Secretaries of the Company and its Australian-based controlled entities. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. Indemnity of auditors Pioneer Credit Limited has agreed to indemnify its auditors, PricewaterhouseCoopers, to the extent permitted by law, against any claim by a third party arising from its breach of their audit engagement agreement. The indemnity stipulates that Pioneer Credit Limited will meet the full amount of any such liabilities including a reasonable amount of legal costs. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001. Non-audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the Group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers Australia) for non-audit services provided during the year are set out below. Pioneer Credit Limited 30 June 2016 Page 32 Director’s report The Board of Directors has considered the position and, in accordance with advice received from the Audit and Risk Management Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:  all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure they do not impact the impartiality and objectivity of the auditor; and  none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. During the year the following fees were paid or payable for non-audit services provided by the auditor of the parent entity, its related practices and non-related audit firms. Taxation services PricewaterhouseCoopers Australia International tax consulting Tax compliance services Total remuneration for taxation services Other services PricewaterhouseCoopers Australia Compliance and accounting advice International Network firms of PricewaterhouseCoopers Australia Payroll and registration services Total remuneration for other services Total remuneration for non-audit services 2016 $ 2015 $ - 11,348 11,348 34,526 134,528 169,054 67,092 - 7,022 74,114 2,137 2,137 85,462 171,191 A copy of the Auditor’s Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 35. Pioneer Credit Limited 30 June 2016 Page 33 Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 relating to the ‘rounding off’ of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, to the nearest dollar. Director’s report This report is made in accordance with a resolution of Directors. Keith John Managing Director Perth 19 August 2016 Pioneer Credit Limited 30 June 2016 Page 34 As lead auditor for the audit of Pioneer Credit Limited for the year ended 30 June 2016, I declare that to the best of my knowledge and belief, there have been: 1. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Pioneer Credit Limited and the entities it controlled during the period. William P R Meston Partner PricewaterhouseCoopers Perth 19 August 2016 PricewaterhouseCoopers, ABN 52 780 433 757 Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840 T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Corporate Governance Statement Pioneer Credit Limited and the Board are committed to achieving and demonstrating the highest standards of corporate governance. Pioneer Credit Limited has reviewed its corporate governance practices against the Corporate Governance Principles and Recommendations (3rd edition) published by the ASX Corporate Governance Council. The 2016 corporate governance statement is dated as at 30 June 2016 and reflects the corporate governance practices in place throughout the 2016 financial year. The 2016 corporate governance statement was approved by the board on 11 July 2016. A description of the Group's current corporate governance practices is set out in the Group's corporate governance statement which can be viewed at: http://corporate.pioneercredit.com.au/investor-centre/corporate-governance/ Pioneer Credit Limited 30 June 2016 Page 36 Financial Statements Pioneer Credit Limited ABN 44 103 003 505 Annual report - 30 June 2016 Contents Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Contents of the notes to the consolidated financial statements Directors’ declaration Independent auditor’s report to the members 38 39 40 41 42 98 99 These financial statements are the consolidated financial statements of the Consolidated Entity consisting of Pioneer Credit Limited and its subsidiaries. A list of subsidiaries is included in note 13. The financial statements are presented in the Australian currency. Pioneer Credit Limited is a Company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Pioneer Credit Limited Level 6, 108 St Georges Terrace Perth WA 6000 The financial statements were authorised for issue by the Directors on 19 August 2016. The Directors have the power to amend and reissue the financial statements. Pioneer Credit Limited 30 June 2016 Page 37 Consolidated statement of comprehensive income Revenue from operations Other income Employee expenses Rental expenses Information technology and communications Direct expenses Depreciation and amortisation Professional expenses Travel and entertainment Other expenses Finance expenses Share of net (loss) / profit of associate accounted for using the equity method Profit before income tax Income tax expense Profit from continuing operations Note 2 2 4 4 5 2016 $’000 47,809 47 47,856 (21,191) (2,549) (2,121) (1,703) (1,184) (1,120) (383) (1,444) (2,412) (22) 13,727 (4,277) 9,450 2015 $’000 38,697 91 38,788 (16,893) (2,059) (1,772) (1,846) (938) (1,169) (469) (1,425) (1,513) 8 10,712 (3,271) 7,441 Total comprehensive income for the year 9,450 7,441 Total comprehensive income for the year is attributable to: Owners of Pioneer Credit Limited Earnings per share for profit attributable to the ordinary equity holders of the Company: Basic earnings per share Diluted earnings per share 9,450 7,441 Cents Cents 21(a) 21(b) 20.36 20.08 16.40 16.40 The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2016 Page 38 Consolidated balance sheet ASSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Financial assets at fair value through profit or loss Total current assets Non-current assets Investments accounted for using the equity method Property, plant and equipment Deferred tax assets Intangible assets Other non-current assets Financial assets at fair value through profit or loss Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Current tax liabilities Accruals and other liabilities Total current liabilities Non-current liabilities Borrowings Provisions and other liabilities Total non-current liabilities Total liabilities Net assets Note 2016 $’000 2015 $’000 6(a) 6(a) 6(b) 14 7(a) 7(b) 7(c) 6(b) 6(c) 6(d) 6(c) 6(d) 6(c) 7(d) 4,894 1,225 380 51,379 57,878 2,593 4,115 1,163 1,847 80 59,730 69,528 2,168 2,190 411 32,576 37,345 2,321 4,335 1,129 384 45 49,346 57,560 127,406 94,905 3,414 5,701 917 2,576 12,608 47,709 2,332 50,041 3,851 11,874 1,199 1,888 18,812 20,999 2,216 23,215 62,649 42,027 64,757 52,878 52,091 1,611 11,055 64,757 45,464 1,073 6,341 52,878 64,757 52,878 EQUITY Contributed equity Other reserves Retained earnings Capital and reserves attributable to the owners of Pioneer Credit Limited 8(g) 8(h) Total equity The above consolidated balance sheet should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2016 Page 39 Consolidated statement of changes in equity Contributed equity $’000 Note Share Based Payment Reserve $’000 Retained earnings $’000 Total equity $’000 Balance at 1 July 2015 45,464 1,073 6,341 52,878 Total comprehensive income for the year - - 9,450 9,450 Transactions with owners in their capacity as owners Contributions of equity, net of transaction costs Dividend reinvestment plan Treasury shares and share based payments Current tax and deferred tax through equity Dividends declared and paid 8(a) 8(a) 8(g) 5 12(b) 5,567 989 - 71 - 6,627 - - 538 - - 538 - - - - (4,736) (4,736) 5,567 989 538 71 (4,736) 2,429 Balance at 30 June 2016 52,091 1,611 11,055 64,757 Balance at 1 July 2014 45,464 1,037 1,101 47,602 Total comprehensive income for the year Transactions with owners in their capacity as owners Treasury shares and share based payments Dividends declared and paid - - - - - 7,441 7,441 36 - 36 - (2,201) (2,201) 36 (2,201) (2,165) Balance at 30 June 2015 45,464 1,073 6,341 52,878 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2016 Page 40 Consolidated statement of cash flows Note 2016 $’000 2015 $’000 Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid Net income taxation paid Net cash inflow from operating activities 2 4 9 Cash flows from investing activities Payments for property, plant and equipment Payments for intangible assets Acquisitions of financial assets at fair value through profit or loss Payment for investment in associate Payment for subsidiary, net of cash acquired Proceeds from the sale of property, plant and equipment Net cash outflow from investing activities Cash flows from financing activities Proceeds from issue of ordinary shares Transaction costs on issue of ordinary shares Proceeds from borrowings Repayment of borrowings Dividends paid to Company’s shareholders Proceeds from issue of ordinary shares under dividend reinvestment plan Treasury shares loan repayment Net cash inflow from financing activities 8(a) 12(b) 8(a) 8(c) Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the year 61,873 (31,050) 30,823 47 (1,719) (4,520) 24,631 (412) (354) (41,903) (293) (150) 5 (43,107) 5,805 (238) 30,221 (10,884) (4,736) 989 45 21,202 2,726 2,168 4,894 55,629 (24,949) 30,680 91 (919) (1,676) 28,176 (1,599) (345) (49,433) (2,313) - 8 (53,682) - - 37,076 (11,665) (2,201) - 6 23,216 (2,290) 4,458 2,168 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. Pioneer Credit Limited 30 June 2016 Page 41 Contents of the notes to the consolidated financial statements How numbers are calculated 1 2 3 4 5 6 7 8 9 Risk 10 11 12 Segment information Revenue from operations Individually significant items Other expense items Income tax expense Financial assets and financial liabilities Non-financial assets and liabilities Equity Cash flow information Critical accounting estimates and judgements Financial risk management Capital management Group structure 13 14 Subsidiaries Associates Unrecognised items 15 16 17 Contingencies Commitments Events occurring after the reporting period Other information 18 19 20 21 22 23 24 25 Related party transactions Share-based payments Remuneration of auditors Earnings per share Deed of cross guarantee Assets pledged as security Parent entity financial information Summary of significant accounting policies 44 45 46 46 47 49 60 65 68 70 71 75 78 79 82 82 82 84 85 86 87 88 88 88 89 Pioneer Credit Limited 30 June 2016 Page 42 Notes to the consolidated financial statements How numbers are calculated This section provides additional information about those individual line items in the financial statements that the Directors consider most relevant in the context of the operations of the entity, including:    1 2 3 4 5 6 7 8 9 accounting policies that are relevant for an understanding of the items recognised in the financial statements. These cover situations where the accounting standards either allow a choice or do not deal with a particular type of transaction; analysis and sub-totals; and information about estimates and judgements made in relation to particular items. Segment information Revenue from operations Individually significant items Other expense items Income tax expense Financial assets and financial liabilities Non-financial assets and liabilities Equity Cash flow information 44 45 46 46 47 49 60 65 68 Pioneer Credit Limited 30 June 2016 Page 43 Notes to the consolidated financial statements 1. Segment information For management purposes, the Group is organised into one main business segment, which is the provision of financial services, specialising in acquiring and servicing unsecured retail debt portfolios in Australia, the sale of non- core portfolios and brokering and introducing credit products. All of the Company’s activities are interrelated, and each activity is dependent on the others. Accordingly, all significant operating decisions are based upon analysis of the Company as one segment. The financial results from this segment are equivalent to the financial statements of the Company as a whole. The Company operated in one geographical segment being Australia. The Company does not have any major customers which comprise more than 10% of revenue. The Company continues to monitor the appropriateness of segment reporting particularly with the introduction of a new subsidiary during the period under review. Segment reporting may be appropriate for future reporting periods. Pioneer Credit Limited 30 June 2016 Page 44 2. Revenue from operations From continuing operations Liquidations of cash flows from purchased debt portfolios Change in value of purchased debt portfolios Net gain on financial assets – purchased debt portfolios Services Revenue recognition Notes to the consolidated financial statements 2016 $’000 2015 $’000 60,411 (13,103) 47,308 55,233 (16,702) 38,531 501 166 47,809 38,697 Revenue is measured at the fair value of the consideration received or receivable. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group's activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue is recognised for the major business activities using the methods outlined below. Customer payments, Debt purchase income, Sale of purchased debt portfolios Net gains on financial assets are disclosed in the consolidated statement of comprehensive income as liquidations of cash flows from purchased debt portfolios net of any change in fair value of the portfolios. The Group recognises purchased debt portfolios as financial assets at fair value through profit or loss. Liquidations of cash flows on the sale of purchased debt portfolios is recognised to the extent that it is probable that the revenue benefits will flow to the Group and the revenue can be reliably measured. The net gain on these assets is disclosed as revenue in the consolidated statement of comprehensive income. Net gains or losses on financial assets measured at fair value are recognised as they accrue. Services Income Revenue from rendering services is recognised to the extent that it is probable that revenue benefits will flow to the Group and the revenue can be reliably measured. Other income Interest income Interest income is recognised using the effective interest method. 2016 $’000 2015 $’000 47 91 Pioneer Credit Limited 30 June 2016 Page 45 Notes to the consolidated financial statements 3. Individually significant items The following prior year items were significant to the financial performance of the Group, and so are listed separately here. These specific costs have been included in profit before income tax. Commercial Claim Settlement and settlement provision Legal costs Indirect Taxation Finalisation of prior periods indirect taxation position Professional costs 4. Other expense items This note provides a breakdown of specific costs included in profit before income tax. Finance expenses Bank fees and borrowing expenses Other interest expense Interest and finance charges paid / payable for financial liabilities not at fair value through profit and loss Employee benefits expense Chairman’s options Share based payments Depreciation and amortisation Depreciation Amortisation 2016 $’000 2015 $’000 - - - - - - 2016 $’000 687 6 1,719 166 15 181 169 186 355 2015 $’000 594 - 919 2,412 1,513 29 464 493 979 205 1,184 30 - 30 816 122 938 Pioneer Credit Limited 30 June 2016 Page 46 Notes to the consolidated financial statements 5. Income tax expense This note provides an analysis of the Group’s income tax expense, shows what amounts are recognised directly in equity and how the tax expense is affected by non-assessable and non-deductible items. It also explains significant estimates made in relation to the Group’s tax position. Income tax expense Current tax Current tax on profits for the year Adjustments for current tax of prior periods Deferred income tax Total current tax expense Income tax is attributable to: Profit from continuing operations Deferred income tax (revenue) expense included in income tax expense comprises: (Decrease) increase direct to equity (Increase) decrease in deferred tax assets Numerical reconciliation of income tax expense to prima facie tax payable 2016 $’000 4,359 11 (93) 4,277 2015 $’000 3,327 (8) (48) 3,271 13,727 10,712 (59) (34) (93) (117) 69 (48) 2016 $’000 2015 $’000 Profit from continuing operations before income tax expense 13,727 10,712 Tax at the Australian tax rate of 30.0% (2015 30.0%) Non-deductible entertainment costs Non-deductible provision for fringe benefits tax Non-deductible share based payments (Over) under provision for prior year taxation Share of net loss / (profits) of associate Other non-deductibles and assessable income Income tax expense 4,118 16 (10) 148 11 7 (13) 4,277 3,214 20 19 12 (8) (2) 16 3,271 Pioneer Credit Limited 30 June 2016 Page 47 Notes to the consolidated financial statements Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss or other comprehensive income but directly debited or credited to equity: Current tax – credited directly to equity Deferred tax – debited directly to equity Net current and deferred tax –credited directly to equity 2016 $’000 2015 $’000 130 (59) 71 117 (117) - Pioneer Credit Limited 30 June 2016 Page 48 Notes to the consolidated financial statements 6. Financial assets and financial liabilities This note provides information about the Group’s financial instruments, including:     an overview of all financial instruments held by the Group; specific information about each type of financial instrument; accounting policies; and information about determining the fair value of the instruments, including judgements and estimation uncertainty involved. The Group holds the following financial instruments: Financial assets 2016 Cash and cash equivalents Trade and other receivables * Financial assets at FVTPL 2015 Cash and cash equivalents Trade and other receivables * Financial assets at FVTPL *excluding prepayments Financial liabilities 2016 Trade and other payables ** Borrowings Accruals, provisions and other liabilities 2015 Trade and other payables ** Borrowings Accruals, provisions and other liabilities **excluding non-financial liabilities Note 6(a) 6(b) 6(a) 6(b) Note 6(c) 6(d) 6(c) 6(d) Assets at FVTPL $’000 - - 111,109 111,109 - - 81,922 81,922 Financial assets at amortised cost $’000 4,894 1,225 - 6,119 2,168 2,190 - 4,358 Financial Liabilities $’000 3,414 53,410 2,809 59,633 3,851 32,873 1,993 38,717 Total $’000 4,894 1,225 111,109 117,228 2,168 2,190 81,922 86,280 Total $’000 3,414 53,410 2,809 59,633 3,851 32,873 1,993 38,717 Pioneer Credit Limited 30 June 2016 Page 49 Notes to the consolidated financial statements The Group’s exposure to various risks associated with the financial instruments is discussed in note 11. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above. 6.a) Trade and other receivables Trade receivables Other receivables Prepayments 2016 Non- current $’000 - - 80 80 Current $’000 1,163 62 380 1,605 Total $’000 1,163 62 460 1,685 Current $’000 1,247 943 411 2,601 2015 Non- current $’000 - - 45 45 Total $’000 1,247 943 456 2,646 Classification as trade and other receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If recovery of the amounts is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are generally due for settlement within 30 days and therefore are all classified as current. The Group’s impairment and other accounting policies for trade and other receivables are outlined in notes 11(c) and 25(e) respectively. Other receivables These amounts generally arise from transactions outside the usual operating activities of the Group. Fair value of trade and other receivables Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same as their fair value. For the majority of the non-current receivables, the fair values are also not significantly different to their carrying amounts. Impairment and risk exposure Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in note 11(a) to 11(c). None of the non-current receivables are impaired or past due but not impaired. Pioneer Credit Limited 30 June 2016 Page 50 6.b) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include the following: Notes to the consolidated financial statements Purchased debt portfolios Current Non-current Movement on financial assets at fair value is as follows: Current and non-current At beginning of period Additions for the period, net of recourse * Liquidations of cash flows from purchased debt portfolios Net gain on financial assets – purchased debt portfolios 2016 $’000 51,379 59,730 111,109 2015 $’000 32,576 49,346 81,922 2016 $’000 2015 $’000 81,922 42,290 (60,411) 47,308 111,109 58,743 39,881 (55,233) 38,531 81,922 * Recourse relates to PDP accounts returned, at cost, to the vendor partners per the terms of the debt purchasing arrangement where the underlying account facility does not meet the contractual terms of the purchase arrangement. i) Classification of financial assets at fair value through profit or loss Pioneer Credit Limited classifies purchased debt portfolios (PDPs) at fair value through profit and loss (FVTPL) as per AASB 139 Financial Instruments: Recognition and Measurement, paragraph 9 part (b) (ii) because:     at initial recognition Pioneer designates PDPs acquired as at fair value through profit or loss; Pioneer manages the PDPs and regularly evaluates their performance on a fair value basis in accordance with a documented risk management or investment strategy; Pioneer has information on that basis about the PDPs and provides the information internally to the Company's Key Management Personnel; and Pioneer reports this relevant information in the comprehensive disclosures provided. The strategy is to provide an overall return on the Company’s portfolio of investments, as opposed to any particular individual customer contract. The Company maintains a documented investment strategy for PDPs and under the Risk Management Policy the management and measurement of its PDPs is properly documented in its Risk Register. The performance management emphasis of the Group is on a total return basis focusing on growth in its payment arrangement portfolios and the total return to the Group measured as operating profit after taxation. The evaluation of performance on a total return basis is clearly required by the documented and approved Key Performance Indicators under which the Group’s performance is evaluated. When management decisions are made with respect to an investment in the portfolios or the liquidation of cash flows, they are made from the point of view of the group of financial assets as a whole, as opposed to on an individual asset basis. Management reporting provides information on returns expressed in terms of overall portfolio return multiples on investment and internal rate of return. An important factor in the investment strategy is to manage a reasonable level of volatility of returns in expectation of overall long term value growth. Pioneer Credit Limited 30 June 2016 Page 51 Notes to the consolidated financial statements Purchased debt portfolios are initially recorded at acquisition cost, which on the basis of the transaction being at arm’s length is considered to be fair value, and thereafter at fair value through profit or loss on the balance sheet, with transaction costs expensed as incurred. Fair value can be best evidenced as a quoted market price in an active market. As there is not a quoted market for PDPs and this is therefore not possible, fair value is based on the present value of expected future cash flows or other valuation techniques based on current market conditions. These valuation techniques derive from market observable inputs wherever possible and otherwise maximise the use of relevant observable inputs and minimise the use of unobservable inputs. Note 6(iv) below explains how the fair value of purchased debt portfolios is determined, including information regarding the key assumptions used. The fair value gains or losses on financial assets are disclosed in the consolidated statement of comprehensive income as part of cash flows from purchased debt portfolios net of any change in value. Purchased debt portfolios are included as non-current assets, except for the amount of the portfolio that is expected to be realised within 12 months of the balance sheet date, for which the present value is classified as a current asset. ii) Amounts recognised in profit or loss Changes in the fair value of financial assets at fair value through profit or loss are recorded as part of revenue. iii) Risk exposure and fair value measurements Information about the Group's exposure to price risk is provided in note 11. For information about the methods and assumptions used in determining fair value of purchased debt portfolios please refer to note 6(v) below. iv) Fair value and fair value measurements a) Fair value hierarchy This section explains the judgements and estimates made in determining the fair values of the financial instruments that are recognised and measured at fair value in the financial statements. To provide an indication about the reliability of the inputs used in determining fair value, the Group has classified its financial instruments into the three levels prescribed under the accounting standards. An explanation of each level follows underneath the table. 30 June 2016 Financial assets Financial assets at FVTPL 30 June 2015 Financial assets Financial assets at FVTPL Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - - - 111,109 111,109 - 81,922 81,922 Pioneer Credit Limited 30 June 2016 Page 52 Notes to the consolidated financial statements Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. b) Transfers between levels There were no transfers between levels in 2016 or 2015. c) Valuation techniques used to derive fair values The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. Level 3 If one or more of the significant inputs is not based on observable market data (unobservable inputs), the instrument is included in Level 3. Inputs are derived and extrapolated where possible from observable characteristics that market participants would take into account when pricing the asset at the measurement date. Assumptions used would be those that market participants would use when pricing, assuming that market participants act in their economic best interest. Inputs are calibrated against current market assumptions, historic transactions and economic models, where available. Unobservable inputs are those for which market data are not available, and that are developed using the best information available about the assumptions that market participants would use when pricing the asset, as can be the case for PDPs. Model risk therefore arises due to the potential of key judgements impacting on the appropriateness of model outputs and reports used. Model risk is mitigated and controlled at its source through effective challenge and critical analysis by objective parties qualified and experienced in the line of business in which the model is used. In addition, consistent with recognised industry guidance, model validation intended to verify that models are performing as expected in line with their design objectives and business uses has been performed to help ensure the models are sound. Commensurate with model use, complexity and materiality, model validation by way of back testing, stability testing and sensitivity analysis were performed and the results, outcomes and actions validated the conceptual soundness of the models. Given that unobservable inputs are those where market data are not available, and the inherent limitations of historic information predicting future liquidations, additional model risk mitigation is achieved through appropriate cautious and reasonable downward calibration of the expected future cash flows. Where the fair value of financial instruments that are not traded in an active market is determined using present value of expected future cash flows valuation techniques, these valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. Pioneer Credit Limited 30 June 2016 Page 53 Notes to the consolidated financial statements The specific valuation technique used is a Discounted Cash Flow (DCF) which incorporates, at least, the following material variables:     Expected liquidation rate Face value Cash flow liquidation period Discount rate  Cost Expressed as a percentage of the face value over time. Of purchased debt portfolios. The period over which cash flows liquidate. Factors in a risk free interest rate and appropriate credit adjustment for risks not built into the underlying expected cash flows. Acquisition cost of acquired PDPs. d) Fair value measurements using significant unobservable inputs Analysis of change in fair value for the year ended 30 June 2016 Actual versus forecast cash flow Change in future forecast cash flows Changes in valuation techniques 2016 $’000 8,733 38,575 47,308 Consistent with our long-standing approach of working towards a complete understanding of the characteristics of the customer portfolios we purchase, and to ensure we realise the appropriate value from those portfolios, the Group has continued the journey of portfolio sales within the secondary sale market for portfolios of accounts where we believe the value to be realised from a portfolio sale provides the greatest expected value to the Group. The Group has progressed from the first portfolio sale in December 2014 to additional portfolio sales in the second half of the year ended June 2015 with sales previously disclosed in the first half of the year ending June 2016 continued in the second half of the financial year. Pioneer engages experts in the financial services brokerage market to facilitate the sale process including, but not limited to, portfolio valuation, issuer approval, sales execution and post sales processes. This progression and the learnings obtained from the sales processes concluded have improved the ability to derive and extrapolate valuation inputs where directly relevant, based on observable characteristics used by market participants, and where possible these observable inputs have been applied in the fair value model resulting in an improvement in the application of valuation techniques. There were no significant changes made to the discounted cash flow valuation applied in the current and prior financial year. Consistent with previous reporting periods, Pioneer has continued to use a discounted cash flow valuation and has continued to improve the valuation process based on maximising the use of observable statistical evidence. This has included improvements in the use of characteristics analysis to ascertain the most informative predictive indicators and applying logistic regression statistics techniques to generate the key assumptions that determine the expected liquidation rate over time. Prior reporting period improvements in the valuation process have previously supported the cash flow liquidation period for customer accounts on payment arrangements to a maximum of ten years and this year’s developments in the model have resulted in this capped period applying throughout. Pioneer Credit Limited 30 June 2016 Page 54 Valuation inputs and relationship to fair value The following table summarises the quantitative impact on those elements of the purchased debt portfolios that are sensitive to the significant unobservable inputs used in Level 3 fair value measurements: Notes to the consolidated financial statements Fair value $’000 $111,109 Valuation technique Discounted Cash Flow and Validation Unobservable inputs Expected liquidation rate Range of inputs 1% change in liquidation rate Description Financial Assets at Fair Value Through Profit or Loss Expected liquidation rate 3% change in liquidation rate flow Cash liquidation period Discount rate Discount rate Impact of an eleven year liquidation period versus year ten a liquidation period Variance risk-adjusted discount rate by 100 bps in in Variance risk-adjusted discount rate by 300 bps Relationship to Fair Value A reduction in liquidation rate by 1% results in a decrease in fair value on total estimated cash flows by $0.798m, an increase results in an increase in fair value on total estimated cash flows of $0.798m. A reduction in liquidation rate by 3% results in a decrease in fair value on total estimated cash flows by $2.393m, an increase results in an increase in fair value on total estimated cash flows of $2.393m. Results in an increase in fair value of $0.708m. The higher the risk-adjusted rate the lower the fair value. A reduction in rate by 100 bps results in an increase in fair value by $1.587m, an increase results in a decrease in fair value of $1.518m. The higher the risk-adjusted rate the lower the fair value. A reduction in rate by 300 bps results in an increase in fair value by $4.987m, an increase results in a decrease in fair value of $4.363m. It is noted that the weighted average discount rate for originated customer accounts, substantially comprising credit cards and personal loans, has fluctuated within a range of 17.6% to 20.9% over the last three years, forming the basis of the above sensitivity range. In determining the weighted average discount rate, the key input is the current market rate for originated loans and advances with similar characteristics, for example credit card or personal loan rates, appropriately risk adjusted. For subsequent measurement, under AASB 139 Financial Instruments: Recognition and Measurement, the other potential method for recognition and measurement is, if the prescribed definition is met, ‘Loans and receivables’ measured at amortised cost. The difference between the carrying value under an amortised cost measurement approach and fair value is expected to be within the reasonably possible range if the discount rate were to be varied as described in the table above. Pioneer Credit Limited 30 June 2016 Page 55 Historical aggregate debt purchases weighted by face value and investment: Notes to the consolidated financial statements v) Valuation Process A key assumption in the valuation of the purchased debt portfolios is in determining the expected liquidation rate. Assumptions about the liquidation rate are based on originator and product characteristics, payment history, market conditions and management experience. At the time of purchase, the price paid is generally determined by an open market tender process in which participants perform their own due diligence and determine the price they are willing to pay. Existing in-house knowledge of the portfolio under offer or similar equivalents is utilised along with a consideration of macro and micro economic factors assessed using the experience of senior management. Subsequent to purchase, fair value adjustments are made in line with expected customer payment liquidations. An assessment of gross nominal future cash flow is made over periods capped to a maximum of ten years depending on the level of liquidation history and forecasting accuracy confidence based on observable evidence within a portfolio. Discount rates used to present value the gross nominal future cash flows incorporate a risk free rate and appropriate credit adjustment for risks not built into the underlying cash flows, noting that the cash flows to which the rates are applied are appropriately risk adjusted. Pioneer Credit Limited 30 June 2016 Page 56 Notes to the consolidated financial statements The valuation of PDPs requires estimation of: a) the expected future cash flows; b) the expected timing of receipt of those cash flows; and c) the current discount rate. Under amortised cost the valuation would in contrast to using the discount rate in c) instead utilise the original effective interest rate extrapolated at investment date (nominated by the purchaser) and this rate would not change over time. The estimation of cash flows and the estimation of their timing is broadly the same as used in the fair value measurement. At the end of each reporting period, under amortised cost, an entity shall assess whether there is any objective evidence of impairment. If any such evidence exists, the entity shall determine the amount of any impairment loss. Similarly if expectations of future cash flows were to subsequently increase a gain would be recognised, up to the original amortised cost, calculated by discounting these incremental cash flows at the original effective interest rate. Pioneer has adopted the fair value basis as it considers this more relevant to the users of the financial statements. The main inputs used by the Group in measuring the fair value of financial instruments are derived and evaluated as follows:  Expected liquidation rate   Face value Cash flow liquidation period  Discount rate  Cost Product characteristics, payment and liquidation history and management experience with historic performance of comparable portfolios and market observable inputs considered to be directly relevant based on observable characteristics used by market participants in determining price. Determined at the date the PDP was acquired. Up to ten years depending on liquidation history. Weighted average liquidation period is 2.8 years (2015 2.6 years) indicating that the majority of liquidation occurs in the earlier years. Incorporate a risk free rate and appropriate credit risk adjustment for risks not built into the underlying cash flows expected to be recovered. The weighted average discount rate used to calculate fair value is 20.1% (2015 20.9%) noting that further risk adjustment is not required as the cash flows to which the rates are applied are appropriately risk adjusted. Recently acquired PDPs may be valued at cost, where it is considered to approximate fair value. Consistent with the manner in which the Group’s purchased debt portfolios are managed, performance is evaluated on a fair value basis. Separate validation of a discounted cash flow approach to fair value is also undertaken. The validation comprises a review of key elements contributing to movements in value including an analysis of the quantum, tenure and qualitative characteristics of the payment arrangements portfolio as well as an assessment of the performance of other key observable portfolio characteristics. Pioneer Credit Limited 30 June 2016 Page 57 6.c) Trade and other payables Notes to the consolidated financial statements Trade payables Payroll tax & other statutory liabilities Other payables 2016 Non- current $’000 - - - - Current $’000 3,414 196 2,053 5,663 Total $’000 3,414 196 2,053 5,663 Current $’000 3,851 195 1,430 5,476 2015 Non- current $’000 - - - - Total $’000 3,851 195 1,430 5,476 See note 7(d) for detail on current provisions. Risk exposure Information about the Group's exposure to foreign exchange risk is provided in note 11. Fair Value The carrying amounts of trade payables and payroll tax and other statutory liabilities are assumed to be the same as their fair values, due to their short-term nature. 6.d) Borrowings Secured Bank loans Lease liabilities Other loans Unsecured Other loans 2016 Non- current $’000 47,046 663 - 47,709 Current $’000 - 508 5,129 5,637 Total $’000 Current $’000 47,046 1,171 5,129 53,346 7,063 - 4,741 11,804 2015 Non- current $’000 20,999 - - 20,999 Total $’000 28,062 - 4,741 32,803 64 - 64 70 - 70 5,701 47,709 53,410 11,874 20,999 32,873 Secured liabilities and assets pledged as security Security over all the assets and undertakings of each of Pioneer Credit Limited, Pioneer Credit Solutions Pty Limited, Sphere Legal Pty Limited, Pioneer Credit (Philippines) Pty Limited, Pioneer Credit Connect Pty Ltd, Pioneer Credit Broking Services Pty Ltd and Switchmyloan Pty Ltd and unlimited cross guarantees and indemnities from each of these entities. All property of the Group comprises the Group total assets of $127,406,000 (2015 $94,905,000). See note 11(d) for details of the financing arrangements available to the Group to which the security relates. Pioneer Credit Limited 30 June 2016 Page 58 Notes to the consolidated financial statements Compliance with loan covenants Pioneer Credit Limited has complied with the financial covenants of its borrowing facilities during the 2016 and 2015 reporting periods, see note 12(c) for details. Fair Value For the majority of the borrowings, the fair values are not materially different to their carrying amounts, since the interest payable on those borrowings is either close to current market rates or the borrowings are of a short-term nature. Risk exposure Details of the Group’s exposure to risks arising from current and non-current borrowings are set out in note 11. Finance lease During FY16, Pioneer entered into a finance lease for various telephony software license applications with a carrying amount of $1.171m (2015 $Nil). Commitments in relation to the finance lease are payable as follows: Within one year Later than one year but not later than two years Later than two years Minimum lease payments Future finance charges Total lease liabilities The present value of finance lease liabilities is as follows: Within one year Later than one year but not later than two years Later than two years Minimum lease payments 2016 $’000 526 394 345 1,265 (94) 1,171 508 361 302 1,171 2015 $’000 - - - - - - - - - - Pioneer Credit Limited 30 June 2016 Page 59 Notes to the consolidated financial statements 7. Non-financial assets and liabilities This note provides information about the Group's non-financial assets and liabilities, including:    specific information about each type of non-financial asset and non-financial liability; accounting policies; and information about determining the fair value of the assets and liabilities, including judgements and estimation uncertainty involved. 7.a) Property, plant and equipment At 1 July 2015 Cost Accumulated depreciation Net book amount Year ended 30 June 2016 Opening net book amount Additions Make good provision Depreciation charge Disposals Lease incentive Closing net book amount At 30 June 2016 Cost Accumulated depreciation Net book amount At 1 July 2014 Cost Accumulated depreciation Net book amount Year ended 30 June 2015 Opening net book amount Additions Make good provision Depreciation charge Disposals Lease incentive Closing net book amount At 30 June 2015 Cost Accumulated depreciation Net book amount Plant and equipment $’000 Furniture, fittings & equipment $’000 Machinery & vehicles $’000 Leasehold improvements $’000 Total $’000 1,766 (904) 862 862 236 - (427) (5) 128 794 249 (92) 157 157 92 - (71) - - 178 1,904 (1,110) 794 285 (107) 178 1,187 (510) 677 677 579 - (394) - - 862 1,766 (904) 862 145 (38) 107 107 104 - (54) - - 157 249 (92) 157 - - - - - - - - - - - - - 41 (30) 11 11 - - (2) (9) - - - - - 3,889 (573) 3,316 5,904 (1,569) 4,335 3,316 84 92 (481) - 132 3,143 4,335 412 92 (979) (5) 260 4,115 4,143 (1,000) 3,143 6,332 (2,217) 4,115 1,949 (207) 1,742 3,322 (785) 2,537 1,742 916 189 (366) - 835 3,316 2,537 1,599 189 (816) (9) 835 4,335 3,889 (573) 3,316 5,904 (1,569) 4,335 Pioneer Credit Limited 30 June 2016 Page 60 Notes to the consolidated financial statements Non-current assets pledged as security Refer to note 6(d) for information on non-current assets pledged as security by the Group. Depreciation methods and useful lives Depreciation of property, plant and equipment is calculated using the diminishing balance method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. Certain leasehold improvements and leased plant and equipment are depreciated on a straight line basis over the term of the lease. Plant and equipment Furniture, fittings and equipment Machinery and vehicles Leasehold improvements Lease incentive 15 - 66.7% 15 - 50% 25% 20 - 50% Over the term of the lease See note 25(f) for the other accounting policies relevant to property, plant and equipment. Lease incentive asset The lease incentive received relates to leasehold improvements in general received as an incentive to take on rental operating leases and has been accounted for as such, with a corresponding liability recognised in Other Liabilities. The lease incentive liability will be released on a straight line basis over the lease term and reduce the rental expense on the consolidated statement of comprehensive income. Pioneer Credit Limited 30 June 2016 Page 61 7.b) Deferred tax balances Deferred tax assets The balance comprises temporary differences attributable to: Employee benefits (annual leave) Retirement benefit obligations (superannuation payable) Other Other expenses (audit, accounting, payroll tax) Share issue expenses Other (formation costs, black hole costs) Prepayments Net deferred tax assets Movements At 1 July 2015 (Charged) / credited To profit or loss Directly to equity At 30 June 2016 At 1 July 2014 (Charged) / credited To profit or loss Directly to equity At 30 June 2015 Notes to the consolidated financial statements 2016 $’000 2015 $’000 170 60 230 338 494 109 (8) 933 128 43 171 269 657 43 (11) 958 1,163 1,129 Employee benefits $’000 Retirement Benefit Obligation $’000 128 42 - 170 86 42 - 128 43 17 - 60 28 15 - 43 Other $’000 Total $’000 958 1,129 34 (59) 933 93 (59) 1,163 1,084 1,198 (9) (117) 958 48 (117) 1,129 Pioneer Credit Limited 30 June 2016 Page 62 7.c) Intangible assets At 1 July 2015 Cost Accumulated depreciation Net book amount Year ended 30 June 2016 Opening net book amount Additions Amortisation charge Closing net book amount At 30 June 2016 Cost Accumulated depreciation Net book amount At 1 July 2014 Cost Accumulated depreciation Net book amount Year ended 30 June 2015 Opening net book amount Additions Amortisation charge Closing net book amount At 30 June 2015 Cost Accumulated depreciation Net book amount Notes to the consolidated financial statements Goodwill $’000 Software and licenses $’000 - - - - 140 - 140 140 - 140 - - - - - - - - - - 571 (187) 384 384 1,528 (205) 1,707 2,099 (392) 1,707 226 (65) 161 161 345 (122) 384 571 (187) 384 Total $’000 571 (187) 384 384 1,668 (205) 1,847 2,239 (392) 1,847 226 (65) 161 161 345 (122) 384 571 (187) 384 Amortisation methods and useful lives The Group amortises intangible assets with a limited useful life using the straight-line method over the following periods: Software and licenses 1-3 years See note 25(g) for the other accounting policies relevant to intangible assets, and the Group’s policy regarding impairments. Finance lease See note 6(d) for information on the finance lease with respect to software licences acquired. Goodwill Goodwill is attributable to the acquisition of Switchmyloan Pty Limited in March 2016. See note 13 for additional information on subsidiaries. Pioneer Credit Limited 30 June 2016 Page 63 7.d) Provisions Employee benefits Lease make good Employee benefits - Long service leave Notes to the consolidated financial statements 2016 Non- current $’000 248 312 560 Current $’000 - - - Total $’000 Current $’000 248 312 560 - - - 2015 Non- current $’000 180 189 369 Total $’000 180 189 369 The liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using rates published in the ‘Group of 100 Discount Rate Report and Discount Curve’. Re-measurement as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss. The obligations are presented as current liabilities in the consolidated balance sheet if the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting date, regardless of when the actual settlement is expected to occur. No employee of the Group will be eligible to take long service leave within the next 12 months. Lease make good Pioneer Credit Limited is required to restore the leased premises of 108 St Georges Terrace, Perth WA 6000, to their original condition at the end of the lease. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. Movements in provisions At 1 July 2015 Carrying amount at start of year Charged to profit or loss Capitalised to balance sheet At 30 June 2016 At 1 July 2014 Carrying amount at start of year Charged to profit or loss Capitalised to balance sheet Amounts used during the year At 30 June 2015 Employee benefits $’000 Lease make good $’000 Commercial claim $’000 180 68 - 248 84 96 - - 180 189 31 92 312 - - 189 - 189 - - - - 279 166 - (445) - Total $’000 369 99 92 560 363 262 189 (445) 369 Pioneer Credit Limited 30 June 2016 Page 64 8. Equity 8.a) Contributed equity Share capital Ordinary shares – fully paid (Treasury shares see note 8(c)) Movements in ordinary share capital Notes to the consolidated financial statements 2016 Shares 2015 Shares 2016 $’000 2015 $’000 48,971,621 44,973,990 52,091 45,464 Date 1 July 2015 30 June 2016 Opening balance Capital raise, net of transaction costs Dividend reinvestment plan Current tax and deferred tax through equity Closing balance 1 July 2014 Opening balance 30 June 2015 Closing balance 8.b) Ordinary shares All authorised ordinary shares have been issued. Number of shares $’000 44,973,990 3,415,031 582,600 - 48,971,621 45,464 5,567 989 71 52,091 44,973,990 45,464 44,973,990 45,464 Ordinary shares have no par value and the Company does not have a limited amount of authorised capital. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. At a general meeting of shareholders; every shareholder entitled to vote may vote in person or by proxy, attorney or representative; on a show of hands every shareholder who is present in person or by proxy, attorney or representative has one vote; and on a poll every shareholder who is present in person or by proxy, attorney or representative has one vote for every share held, but, in respect of partly-paid shares, shall have a fraction of a vote for each partly-paid share. Shares acquired under the Employee Share Scheme are held under a trading lock. Shares in the Employee Offer otherwise carry the same rights and entitlements of fully paid ordinary shares, including dividend and voting rights. Pioneer Credit Limited 30 June 2016 Page 65 8.c) Treasury shares Notes to the consolidated financial statements Date Number of shares $’000 1 July 2015 30 June 2016 Opening balance Receipt on treasury shares Closing balance 1 July 2014 30 June 2015 Opening balance Receipt on treasury shares Closing balance 8.d) Employee share scheme 400,000 - 400,000 400,000 - 400,000 1,030 45 1,075 1,024 6 1,030 No new employee shares were issued during the period under review. See note 8(f) for the Equity Incentive Plan. 8.e) Options Information relating to the Chairman's Options, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 19(a). 8.f) Equity Incentive Plan At the Annual General Meeting on 29 October 2014, the Company approved an employee incentive plan whereby certain eligible employees would be granted performance rights. Each Right entitles the holder to acquire one fully paid Pioneer share for nil consideration, subject to vesting conditions being met. The plan is intended not only to attract and reward but also retain participating employees. Therefore, a tenure based vesting condition was determined to be most appropriate. The performance conditions surrounding these Rights were met on the 20 August 2015. 780,000 Rights were granted on 1 September 2015. Rights granted will vest in accordance with the following schedule (each a ‘Vesting Date’): • 1 July 2017: 60% Rights will vest; • 1 July 2018: 25% Rights will vest; and • 1 July 2019: 15% Rights will vest, provided the holder of the Rights remains employed by the Group at the respective Vesting Date. The terms of each tranche of Rights are summarised in the table below. Fair value at grant date Grant date Share price at grant date Expiration period (years) Dividend yield Vesting date Exercise price Tranche 1 $1.6009 1-Sep-15 $1.77 1.83 5.48% 1-Jul-17 Nil Tranche 2 $1.5155 1-Sep-15 $1.77 2.83 5.48% 1-Jul-18 Nil Tranche 3 $1.4347 1-Sep-15 $1.77 3.83 5.48% 1-Jul-19 Nil Pioneer Credit Limited 30 June 2016 Page 66 Notes to the consolidated financial statements 8.g) Other reserves The following table shows a breakdown of the balance sheet line item ‘Other reserves’ and the movements in these reserves during the period under review. A description of the nature and purpose of each reserve is provided below the table. Share based payment reserve At 1 July 2015 Opening balance Chairman’s options Share based payments Treasury shares At 30 June 2016 At 1 July 2014 Opening balance Chairman’s options Treasury shares At 30 June 2015 $’000 1,073 29 464 45 1,611 1,037 30 6 1,073 Nature and purpose of other reserves share-based payments The share based payments reserve is used to recognise:   the grant date fair value of options and rights issued to employees but not exercised over the vesting period; and the grant date fair value of shares issued to employees over the vesting period. 8.h) Retained earnings Movements in retained earnings were as follows: Balance 1 July Net profit for the year Dividends Balance 30 June 2016 $’000 6,341 9,450 (4,736) 11,055 2015 $’000 1,101 7,441 (2,201) 6,341 Pioneer Credit Limited 30 June 2016 Page 67 9. Cash flow information 9.a) Reconciliation of profit after income tax to net cash inflow from operating activities Notes to the consolidated financial statements Profit for the period Depreciation and amortisation Non-cash employee benefits expense – share-based payments Net profit on sale of assets Share of profit of associate accounted for using the equity method Change in value of purchased debt portfolios Change in operating assets and liabilities: Decrease (increase) in trade receivables (Increase) decrease in deferred tax assets through profit or loss (Decrease) increase in trade payables (Decrease) increase in provision for income taxes payable Increase (decrease) in accruals and other liabilities Net cash flow inflow from operating activities 9.b) Non-cash investing and financing activities Make good provision Lease incentive liability released Lease incentive recognised Finance lease Note 4 19(d) 2 2016 $’000 9,450 1,184 493 (5) 22 13,103 961 (33) (1,138) (210) 804 24,631 2016 $’000 92 (280) 260 1,171 2015 $’000 7,441 938 30 (8) (8) 16,702 240 (48) 2,125 1,643 (879) 28,176 2015 $’000 189 (159) 835 - Pioneer Credit Limited 30 June 2016 Page 68 Notes to the consolidated financial statements Risk This section of the notes discusses the Group’s exposure to various risks and shows how these could affect the Group’s financial position and performance. 10 11 12 Critical accounting estimates and judgements Financial risk management Capital management 70 71 75 Pioneer Credit Limited 30 June 2016 Page 69 Notes to the consolidated financial statements 10. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. Management also needs to exercise judgement in applying the Group’s accounting policies. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Fair value measurement of financial instruments The fair value of financial instruments that are not traded in a sufficiently active market is determined using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions, including considering market conditions existing at the end of each reporting period. The Group uses its judgement and makes assumptions as to the allocation of purchased debt portfolios between current and non-current asset allocations. For details of the key assumptions used and the impact of changes to these assumptions see note 6(b). Investment in associate The Group’s assessment is that the investment in Goldfields Money Limited represents an investment in associate, to be accounted for using the equity method of accounting, as the Group can demonstrate significant influence. The Group’s assessment at the end of the reporting period is that there is no objective evidence that this equity- accounted investment is impaired. Goldfields Money Limited is a publically traded entity and at the time of approval of this Annual Report, publically available information as at 30 June 2016 was not available on Goldfields Money Limited. Management has exercised judgement in determining the share of equity income from this associate. Selected information has been presented based on information readily available to the Group. See note 14 for more information on the investment in associate. Goodwill The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a cash generating unit (CGU) is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by management covering at a minimum a three-year period. Cash flows beyond this period are extrapolated using cautious estimated growth rates. Pioneer Credit Limited 30 June 2016 Page 70 Notes to the consolidated financial statements 11. Financial risk management The Group's activities expose it to a variety of financial risks: market risk; credit risk; and liquidity risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses different methods to measure the different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rates, preparation and review of ageing analysis for credit risk and projected cash flow analysis across the portfolio to manage the risk associated with the purchased debt portfolio. Risk management is the responsibility of Key Management Personnel. Policies under approval by the Board of Directors ensure that the total risk exposure of the Group is consistent with the Group strategy, is in line with Group covenants and is within the risk tolerance guidelines of the Group. To manage interest rate and credit risk arising from the investment in purchased debt portfolios, the Group undertakes pricing analysis at tender stage. Pricing is determined by a bidding process in a tender market place with each purchaser relying on their own analysis. Analysis by the Group includes consideration of information supplied under due diligence at tender stage, as well as macro and micro economic elements to which senior management experience and judgement is applied. In many cases there exists in-house knowledge of the performance of portfolios with similar characteristics and in other cases data analysis is restricted to the information supplied at due diligence. Purchased debt portfolios are subsequently managed and performance is evaluated on a fair value basis. The Group periodically considers the need to make use of derivative financial instruments and hedging arrangements to manage interest rate risk. There are currently no such arrangements in place. During the year under review, there has been no change to the Group’s exposure to the above risks or the manner in which these risks are managed and measured. 11.a) Summarised sensitivity analysis – interest rate risk The following table summarises the sensitivity of the Group's financial assets and financial liabilities to interest rate risk. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. At 30 June 2016 Financial liabilities Borrowings At 30 June 2015 Financial liabilities Borrowings Carrying amount $’000 -100 bps Profit $’000 +100 bps Profit $’000 47,046 399 (399) 28,210 199 (199) Financial assets sensitive to interest rate risk comprise cash and cash equivalents only and their sensitivity to interest rate risk has not been included as the expense is not significant. Pioneer Credit Limited 30 June 2016 Page 71 Notes to the consolidated financial statements 11.b) Market risk This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. This comprises: Foreign exchange risk The Group has no financial instruments exposed to foreign currencies and as such there is no risk associated with fluctuations in foreign exchange rates. Cash flow and fair value interest rate risk The Group’s main interest rate risk arises from long-term loans and borrowings issued at variable interest rates. The Group’s fixed rate borrowings and receivables are carried at amortised cost and not subject to interest rate risk. As at the end of the reporting period the Group had the following variable rate loans and borrowings outstanding: Instruments used by the Group 30 June 2016 Weighted average interest rate % 30 June 2015 Balance Weighted average interest rate % $’000 Balance $’000 Bank overdrafts and bank loans 4.28% 47,046 4.56% 28,210 The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the Group calculates the impact on profit or loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. The simulation is done on a half yearly basis to verify that the maximum loss potential is within the limit given by management. Price risk The Group has no financial instruments exposed to market prices and as such there is no risk associated with fluctuations in market prices. Financial assets at fair value through profit and loss relate entirely to the purchased debt portfolio. Pioneer Credit Limited 30 June 2016 Page 72 Notes to the consolidated financial statements 11.c) Credit risk Credit risk arises from cash and cash equivalents, credit exposure to customers, including outstanding receivables and committed transactions. Risk management Credit risk is managed on a Group basis. For corporate customers, management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by management. The compliance with credit limits by corporate customers is regularly monitored by management. There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and / or regions. The Group is also exposed to investment credit risk from the significant investment in purchased debt portfolios. Risk limits are set based on internal ratings in accordance with limits set by management. The compliance with investment credit limits on the purchased debt portfolios is regularly monitored by management. Impaired trade receivables At both 30 June 2016, and 30 June 2015, no current trade receivables of the Group were impaired, nor overdue. 11.d) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities to meet obligations when due. Due to the dynamic nature of the business, management maintains flexibility in funding by maintaining availability under committed credit lines. Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow. Cash flow is forecast on a day-to-day basis to ensure that sufficient funds are available to meet requirements on the basis of expected cash flows. Liquidity risk is further managed through maintaining a reputable credit profile. Financing arrangements The Group had access to a Senior Debt Facility of $67,060,000 at the end of the financial year (2015 $54,060,000). The facility comprises a cash advance facility to fund the acquisition of purchased debt portfolios, a bank guarantee facility, an overdraft facility, a direct debit authority facility and a credit card facility. The overdraft facility was unused at 30 June 2016 and the undrawn limit on the cash advance facility was $12,953,622 at 30 June 2015 (2015 $18,791,000). The facility is subject to the Group meeting a number of financial undertakings, all of which have been met to date. The facility will expire on 31 July 2017. Management has no reason to believe that the facility will not be renewed and / or extended beyond this date. The Group is required to keep the finance provider fully informed of relevant details of the Group as they arise. Pioneer Credit Limited 30 June 2016 Page 73 Notes to the consolidated financial statements Maturities of financial liabilities The following table reflects an undiscounted contractual maturity analysis for financial liabilities. The timing of cash flows represented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectation that the facilities will be extended. At 30 June 2016 Trade payables Borrowings Accruals, provisions and other liabilities At 30 June 2015 Trade payables Borrowings Accruals, provisions and other liabilities Within 1 year $’000 Between 1 and 2 years $’000 Between 2 and 5 years $’000 Carrying amount $’000 3,414 7,732 2,249 13,395 3,851 13,002 1,624 18,477 - 47,611 - 47,611 - 7,935 - 7,935 - 345 560 905 - 14,558 369 14,927 3,414 53,410 2,809 59,633 3,851 32,873 1,993 38,717 Pioneer Credit Limited 30 June 2016 Page 74 Notes to the consolidated financial statements 12. Capital management 12.a) Risk management The Group's objectives when managing capital are to:  safeguard its ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and  maintain an optimal capital structure to reduce the cost of capital. 12.b) Dividends Ordinary shares 2H FY15 dividend on fully paid ordinary shares held on 30 September 2015 of 6.80 cents per share paid on 30 October 2015 (2H FY14 3.10 cents per share) 1H FY16 dividend on fully paid ordinary shares held on 31 March 2016 of 3.60 cents per share paid on 29 April 2016 (1H FY15 1.75 cents per share ) Dividends not recognised at the end of the reporting period Since year end the Directors have recommended the payment of a final dividend of 6.20 cents per fully paid ordinary share (2015 6.80 cents), fully franked based on tax paid at 30%. The aggregate amount of the proposed dividend expected to be paid on 31 October 2016 out of profits at 30 June 2016, but not recognised as a liability at year end is Franking dividends 2016 $’000 2015 $’000 3,085 1,407 1,651 794 4,736 2,201 2016 $’000 2015 $’000 3,071 3,085 The franked portions of the final dividends recommended after 30 June 2016 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in the year ended 30 June 2017. Franking credits available for subsequent reporting periods based on a tax rate of 30.0% (2015 30.0%) 5,005 2,408 The above amounts are calculated from the balance of the franking account as at the end of the reporting period, adjusted for franking credits and debits that will arise from the settlement of liabilities or receivables for income tax and dividends after the end of the year. 2016 $’000 2015 $’000 Pioneer Credit Limited 30 June 2016 Page 75 Notes to the consolidated financial statements 12.c) Capital risk management Although the Group is not subject to any externally imposed regulatory requirement, it has adopted a conservative and proactive capital management strategy. The Group has taken a prudent approach to gearing with the significant sources of funding being supplied by shareholder equity and variable rate financier borrowings, as well as appropriate trade working capital arrangements. All major capital related initiatives require Board approval. The Group is well funded at balance date and into the foreseeable future. Management monitor key balance sheet ratios as part of the strategy as well as to demonstrate compliance with the financier covenant requirements. Three year rolling capital forecast analysis is regularly reviewed to assess the impact of growth and future opportunity on funding requirements with a focus on determining adequacy of short to medium term requirements. Arrangements with the Group's financier are in place to ensure that there is sufficient undrawn credit available to meet reasonably unforeseen circumstances should they arise. Financing facilities are renegotiated on a regular basis to ensure that they are sufficient for the Group’s projected growth. As far as possible, asset purchases are funded from operational cash flow, allowing undrawn balances to be maintained. Cash is monitored on a daily basis to ensure that immediate and short term requirements can be met. By maintaining a balance of undrawn funds, the Company reduces the risk of liquidity and going concern issues. Details of financing facilities are set out in note 11(d). Under the terms of the Senior Debt Facility, the Group is required to comply with financial covenants at all times, tested monthly. The Group has met all covenant obligations of the financier at all times during the current and prior years. Pioneer Credit Limited 30 June 2016 Page 76 Notes to the consolidated financial statements Group Structure This section provides information which will help users understand how the Group structure affects the financial position and performance of the Group as a whole. Subsidiaries 13 14 Associates 78 79 Pioneer Credit Limited 30 June 2016 Page 77 Notes to the consolidated financial statements 13. Subsidiaries Significant investments in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following principal subsidiaries in accordance with the accounting policy described in note 25(b). Name of entity Country of incorporation Class of shares Equity holding 2016 2015 Pioneer Credit Solutions Pty Limited Sphere Legal Pty Limited Pioneer Credit (Philippines) Pty Limited Pioneer Credit Connect Pty Limited Pioneer Credit Broking Services Pty Limited Switchmyloan Pty Limited Credit Place Pty Limited Pioneer Credit Acquisition Services (UK) Limited 1 2 3 4 5 Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary Australia Ordinary United Kingdom Ordinary % 100 100 100 100 100 100 100 100 % 100 100 100 100 100 - - 100 1 2 3 4 5 Rebranded from Pioneer Credit Acquisition Services Pty Limited Rebranded from Pioneer Credit Financial Services Pty Limited Switchmyloan Pty Limited was acquired on 2 March 2016 Credit Place Pty Limited was incorporated on 9 June 2016 and has not conducted any business since inception to the date of this report Pioneer Credit Acquisition Services (UK) Limited is an entity incorporated in the United Kingdom and has not conducted any business since inception to the date of this report The principal activities of the entities listed are consistent with those described for the Group in the Directors’ Report, namely, specialising in acquiring and servicing unsecured retail debt portfolios and the brokering and introduction of credit products. Pioneer Credit Limited 30 June 2016 Page 78 Notes to the consolidated financial statements 14. Associates Investment in associate Set out below is the investment in an associate of the Group as at 30 June 2016. The entity listed below has share capital consisting solely of ordinary shares, which are held directly by the Group. The country of incorporation or registration is also the principal place of business, and the proportion of ownership interest is the same as the proportion of voting rights held. Name of entity Place of business / country of incorporation % of ownership interest 30 June 2015 30 June 2016 Nature of relationship Measurement method Goldfields Money Limited Australia 14.10 14.13 Associate Equity method Goldfields Money Limited (GMY) is an ASX listed Authorised Deposit-taking Institution (ADI) and offers a variety of loan products including home, personal and commercial loans with various features to the public. GMY also offers a variety of savings and investments, including transaction and saving accounts and term deposits. Historically, GMY focused on providing financial services for individuals and businesses within the Goldfields region. The Group acquired the holding during the last quarter of the 2015 financial year. At 30 June 2016, the Group’s share of the quoted market value of GMY was $2.312m while the carrying value, inclusive of transaction costs and equity method accounting is $2.593m. In May 2016 Pioneer participated in the Goldfields Money Limited capital raising through an investment of $293,400. The Australian Prudential Regulation Authority (APRA) imposes a 15% cap on any one’s individual equity holding in an ADI. The Group’s holding is near that limit. There are no restrictions on the Group’s ability to dispose of its holding in GMY. The Group acquired this associate holding as part of the strategic growth strategy of the Group. The Group’s assessment at the end of the reporting period is that there is no objective evidence that the equity- accounted investment is impaired. There were no transactions with the associate during the financial year. The Group is not aware of any contingent liabilities that may or may not exist within Goldfields Money at 30 June 2016. Pioneer Credit Limited 30 June 2016 Page 79 Summarised financial information for the associate Goldfields Money is a publically traded entity. Summarised statement of financial position Total assets Total liabilities Net assets Movement in net assets Opening net assets (Loss) / Profit for the period Capital raise Equity raising costs Other comprehensive income Closing net assets Group’s share of net assets in % Group’s share of net assets in $ Summarised statement of comprehensive income Interest revenue Interest expense Non-interest revenue Other expenses Income tax benefit (Loss) / Profit from continuing operations Other comprehensive income Total comprehensive income Dividends received from associates Summarised commitments Outstanding loan commitments Outstanding overdraft commitments Lease commitments Due not later than one year Due later than one year and not later than five years Unrecognised items Notes to the consolidated financial statements 30 June 2016 $’000 30 June 2015 $’000 156,580 (139,712) 16,868 158,984 (144,077) 14,907 14,907 (95) 2,106 (50) - 16,868 14.10% 2,378 14,838 140 - (71) - 14,907 14.13% 2,106 30 June 2016 $’000 30 June 2015 $’000 6,723 (3,613) 508 (3,835) 122 (95) - (95) 7,259 (4,319) 404 (3,254) 50 140 - 140 - - 30 June 2016 $’000 30 June 2015 $’000 10,745 657 10,185 449 47 168 215 53 58 111 Pioneer Credit Limited 30 June 2016 Page 80 Notes to the consolidated financial statements This section of the notes provides information about items that are not recognised in the financial statements as they do not satisfy the recognition criteria. 15 16 17 Contingencies Commitments Events occurring after the reporting period 82 82 82 Pioneer Credit Limited 30 June 2016 Page 81 15. Contingencies The Directors are of the opinion that no contingent liabilities or contingent assets exist as at the date of this report. Notes to the consolidated financial statements 16. Commitments 16.a) Non-cancellable operating leases The Group leases various offices under non-cancellable operating leases expiring within eight years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than five years Later than five years 2016 $’000 2015 $’000 2,031 8,727 4,734 15,492 2,025 8,340 7,053 17,418 The agreement includes a lease incentive. The assets obtained by the Group have been recognised as Leasehold Improvements and are depreciated over the shorter of their useful life or the lease term. The lease incentive is presented as part of the lease liabilities and is reversed on a straight line basis over the lease term. 16.b) Service contract The Group has a services contract ending in August 2016 which has an option to extend for a further three years. The Group has no reason to believe that the service contract will not be extended. Commitments for minimum service payments in relation to non-cancellable contracts are payable as follows: Within one year Later than one year but not later than five years 2016 $’000 324 - 324 2015 $’000 1,551 204 1,755 17. Events occurring after the reporting period No matter or circumstance has occurred subsequent to year end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. Pioneer Credit Limited 30 June 2016 Page 82 Other information This section of the notes includes other information that must be disclosed to comply with the accounting standards and other pronouncements, but that is not immediately related to individual line items in the financial statements. Notes to the consolidated financial statements Related party transactions 18 Share-based payments 19 Remuneration of auditors 20 21 Earnings per share 22 Deed of cross guarantee 23 Assets pledged as security 24 25 Parent entity financial information Summary of significant accounting policies 84 85 86 87 88 88 88 89 Pioneer Credit Limited 30 June 2016 Page 83 Notes to the consolidated financial statements 18. Related party transactions 18.a) Parent entity The Parent entity within the Group is Pioneer Credit Limited. 18.b) Subsidiaries Interests in subsidiaries are set out in note 13. 18.c) Associates Interests in associates are set out in note 14. In May 2016 Pioneer participated in the Goldfields Money Limited capital raising through an investment of $293,400. 18.d) Key Management Personnel Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments 2016 $ 2015 $ 1,841,824 168,389 42,097 296,760 2,349,070 1,426,530 127,948 40,210 30,068 1,624,756 Detailed remuneration disclosures are provided in the Remuneration Report on pages 16 to 32. 18.e) Transactions with other related parties The following transactions occurred with related parties: Rental expenses and other services Other related parties Superannuation contributions 2016 $ 2015 $ 223,062 490,917 Contributions to superannuation funds on behalf of Directors 77,125 67,751 Other transactions Remuneration paid to Directors of the ultimate Australian parent entity 960,460 801,817 Pioneer Credit Limited 30 June 2016 Page 84 Notes to the consolidated financial statements 18.f) Loans from related parties There were no loans from or loan repayments to related parties in either 2016 and 2015. 18.g) Terms and conditions See note 8(b) for general terms and conditions on ordinary shares. 19. Share-based payments 19.a) Chairman’s options At both 30 June 2016, and 30 June 2015, the Company had the following share-based payment arrangement. On 7 February 2014, the Company established a share option scheme that entitles the Chairman to purchase 300,000 shares (50,000 shares vest in April 2016 and 250,000 vest in April 2017) in the Company at an exercise price of $1.92. Under the scheme, each share option which vests converts to one ordinary share of Pioneer on payment of the exercise price. Fair value of options granted – fair value at grant date The fair value of the Chairman's share options has been measured using a binomial pricing model. Service conditions attached to the transactions were not taken into account in measuring grant date fair value. Fair value at grant date Expected IPO price at grant date Exercise price Expected volatility (weighted-average) Expected life (weighted-average) Expected dividend yield Risk-free interest rate (based on government bonds) Tranche 1 Tranche 2 $0.28 $1.60 $1.92 35% 4.22 years 4.5% 3.041% $0.31 $1.60 $1.92 35% 5.22 years 4.5% 3.266% Expected volatility has been based on an evaluation of the historical volatility of the share price of similar entities, particularly over the historical period commensurate with the expected term. The expected term of the instruments has been based on historical experience and general option holder behaviour. Pioneer Credit Limited 30 June 2016 Page 85 Notes to the consolidated financial statements 19.b) Management options No management options were granted or vested during the financial year. 19.c) Employee Equity Incentive Plan At the Annual General Meeting on 29 October 2014, the Company approved an employee incentive plan whereby certain eligible employees would be granted performance rights. Each Right entitles the holder to acquire one fully paid Pioneer share for nil consideration, subject to vesting conditions being met. The performance conditions surrounding these Rights were met on the 20 August 2015. 780,000 Rights were granted on 1 September 2015. See note 8.f) for more information. 19.d) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows: Chairman’s options Employee equity incentive plan 20. Remuneration of auditors 2016 $’000 29 464 493 2015 $’000 30 - 30 During the year the following fees were paid or are payable for services provided by the auditor of the Parent entity, its related practices and non-related audit firms: PricewaterhouseCoopers Australia Audit and other assurance services Audit and review of financial statements Total remuneration of PricewaterhouseCoopers Australia Network firms of PricewaterhouseCoopers Australia Other services Other compliance and accounting advice Total remuneration of Network firms of PricewaterhouseCoopers Australia Non-PricewaterhouseCoopers Australia related audit firms Other services Other tax, compliance and accounting advice Total remuneration of non-PricewaterhouseCoopers Australia related firms 2016 $ 2015 $ 341,209 341,209 255,914 255,914 85,462 85,462 171,191 171,191 113,940 113,940 117,179 117,179 540,611 544,284 Amounts disclosed for auditor’s remuneration are inclusive of GST that is not recoverable from the tax authority. See note 25 (n). Pioneer Credit Limited 30 June 2016 Page 86 21. Earnings per share 21.a) Basic earnings per share Notes to the consolidated financial statements From continuing operations attributable to the ordinary equity holders of the Company Total basic earnings per share attributable to the ordinary equity holders of the Company 21.b) Diluted earnings per share From continuing operations attributable to the ordinary equity holders of the Company Total diluted earnings per share attributable to the ordinary equity holders of the Company 21.c) Reconciliation of earnings used in calculating earnings per share 2016 Cents 20.36 20.36 2016 Cents 20.08 20.08 2015 Cents 16.40 16.40 2015 Cents 16.40 16.40 2016 $’000 2015 $’000 Basic earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share: From continuing operations 9,450 7,441 Diluted earnings per share Profit from continuing operations attributable to the ordinary equity holders of the Company Used in calculating diluted earnings per share 9,450 7,441 21.d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary and potential shares used as the denominator in calculating diluted earnings per share 2016 Number 2015 Number 46,407,084 45,373,990 47,054,953 45,373,990 Pioneer Credit Limited 30 June 2016 Page 87 Notes to the consolidated financial statements 22. Deed of cross guarantee Pioneer Credit Limited, Pioneer Credit Solutions Pty Limited, Sphere Legal Pty Limited, Pioneer Credit (Philippines) Pty Limited, Pioneer Credit Connect Pty Limited, and Pioneer Credit Broking Services Pty Limited are parties to a deed of cross guarantee, entered into on 25 June 2015. Switchmyloan Pty Limited was joined to this deed of cross guarantee on 6 June 2016, under which each Company guarantees the debts of the others. By entering into the deed, these wholly-owned entities have been relieved from the requirement to prepare a financial report and Directors' report under Class Order 98/1418 (as amended) issued by the Australian Securities and Investments Commission. The consolidated financial statements of Pioneer Credit Limited include the subsidiaries as set out in note 13 to these consolidated financial statements. Of these, Credit Place Pty Limited and Pioneer Credit Acquisition Services (UK) Limited are the only subsidiaries that are not party to the deed of cross guarantee. The Directors have determined that Credit Place Pty Limited and Pioneer Credit Acquisition Services (UK) Limited are not reporting entities. Neither entity has conducted any business since inception to the date of this report. At 30 June 2016, Credit Place Pty Limited has total assets of $1.00 and generated no revenue. Costs incurred are insignificant and relate to establishing the entity. At 30 June 2016, Pioneer Credit Acquisition Services (UK) Limited has total assets of $6.00 and generated no revenue. Costs incurred are insignificant and relate to regulatory reporting requirements in the United Kingdom. 23. Assets pledged as security The carrying amount of assets pledged as security is disclosed in note 6(d). 24. Parent entity financial information 24.a) Summary financial information The individual financial statements for the Parent entity show the following aggregate amounts: Balance sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Issued capital Share based payment reserve Accumulated profits (losses) Profit (loss) for the year Total comprehensive income 2016 $’000 2015 $’000 402 73,548 5,781 8,776 52,088 1,611 11,073 64,772 1,205 61,247 6,711 9,001 45,459 1,073 5,714 52,246 10,095 8,968 10,095 8,968 Pioneer Credit Limited 30 June 2016 Page 88 24.b) Guarantees entered into by the Parent entity The Parent entity is bound under an unlimited commercial guarantee and indemnity as part of the Group, with security held over all property. Notes to the consolidated financial statements 24.c) Contingent liabilities of the Parent entity The Parent entity did not have any contingent liabilities as at 30 June 2016 or 30 June 2015. 24.d) Contractual commitments for the acquisition of property, plant or equipment The Parent entity has no contractual commitments for the acquisition of property, plant or equipment at 30 June 2016 (2015 Nil) .The Parent entity entered into a finance lease during the financial year, see note 6(d). 25. Summary of significant accounting policies This note provides a list of all significant accounting policies adopted in the preparation of these consolidated financial statements. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Group consisting of Pioneer Credit Limited and its subsidiaries. Contents of the summary of significant accounting policies Income tax Intangible assets a) Basis of preparation b) Principles of consolidation c) d) Cash and cash equivalents e) Trade & other receivables f) Property, plant and equipment g) h) Trade and other payables i) Borrowings j) Provisions k) Employee benefits l) Contributed equity m) Earnings per share n) Goods and Services Tax (GST) o) Rounding of amounts Impairment of assets p) Leases q) 90 92 93 93 94 94 94 95 95 95 95 96 96 96 96 97 97 Pioneer Credit Limited 30 June 2016 Page 89 Notes to the consolidated financial statements 25.a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and interpretations issued by the Australian Accounting Standards Board and the Corporations Act 2001. Pioneer Credit Limited is a for-profit entity for the purpose of preparing the financial statements. Compliance with IFRS The consolidated financial statements of the Pioneer Credit Limited Group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Basis of measurement The consolidated financial statements have been prepared on an accruals basis and are based on historical costs modified, where applicable, by the measurement at fair value of selected financial assets and financial liabilities. The consolidated financial statements have been prepared on a going concern basis. Functional and presentation currency The consolidated financial statements are presented in Australian dollars, which is Pioneer Credit Limited's functional and presentation currency. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 10. Changes to presentation Certain classifications on the consolidated statement of comprehensive income, consolidated balance sheet and consolidated statement of cash flows have been reclassified. The Group believes that this will provide more relevant information to stakeholders as it is more in line with common practice in the industry the Group is operating in. The comparative information has been reclassified accordingly. Pioneer Credit Limited 30 June 2016 Page 90 Notes to the consolidated financial statements New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. i) AASB 9 Financial Instruments Simplifies the model for classifying and recognising financial instruments and aligns hedge accounting more closely with common risk management practices. Changes in own credit risk in respect of liabilities designated at fair value through profit or loss shall now be presented within OCI; this change can be adopted early without adopting AASB 9. AASB 9’s new impairment model is a move away from AASB 139’s incurred credit loss approach to an expected credit loss model. Earlier recognition of impairment losses is likely to result and for entities with significant lending activities, an overhaul of related systems and processes will be needed. The standard applies to annual reporting periods beginning on or after 1 January 2018. The Group has not yet determined the impact, if any, of adopting AASB 9 and the Group has not yet decided whether to early adopt any parts of AASB 9. ii) AASB 15 Revenue from Contracts with Customers. This will replace AASB 118, which covers contracts for goods and services, and AASB 111, which covers construction contracts. AASB 15 will become mandatory for financial years commencing on or after 1 January 2018, but is available for early adoption. The Group has not yet determined the impact, if any, of adopting AASB 15 and the Group has not yet decided whether to early adopt any parts of AASB 15. iii) AASB 16 Leases. AASB 16 will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for almost all lease contracts. The accounting by lessors, however, will not significantly change. The changes under AASB 16 are significant and will have a pervasive impact, particularly for lessees with operating leases. AASB 16 applies to annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted for entities that apply AASB 15 on or before the initial application of AASB 16. The Group has not yet determined the impact, if any, of adopting AASB 16 and the Group has not yet decided whether to early adopt any parts of AASB 16. Other amendments to existing standards that are not yet effective are not expected to result in significant changes to the Group’s accounting policies. Pioneer Credit Limited 30 June 2016 Page 91 Notes to the consolidated financial statements 25.b) Principles of consolidation Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Pioneer Credit Limited (the ‘Company' or 'Parent entity') as at 30 June 2016 and the results of all subsidiaries for the year then ended. Pioneer Credit Limited and its subsidiaries together are referred to in this financial report as the Group or the Consolidated Entity. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations undertaken by the Group. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases. Associates Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights or otherwise demonstrates significant influence. Investments in associates are accounted for using the equity method of accounting (described below), after initially being recognised at cost. Equity method Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses, of the investee, in profit or loss, and the Group’s share of movements in other comprehensive income of the investee, in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group assesses at the end of each reporting period whether there is any objective evidence that the equity- accounted investment is impaired. Objective evidence of impairment for an investment in an equity instrument includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. Where there is objective evidence based on observable data that there may be an impairment, the carrying amount of the equity-accounted investment is tested in accordance with the policy described in note 25(p). Pioneer Credit Limited 30 June 2016 Page 92 Notes to the consolidated financial statements 25.c) Income tax The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Pioneer Credit Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. 25.d) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. Pioneer Credit Limited 30 June 2016 Page 93 Notes to the consolidated financial statements 25.e) Trade & other receivables Trade receivables are recognised initially at fair value, less provision for impairment. Trade receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in profit or loss within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in profit or loss. 25.f) Property, plant and equipment All property, plant and equipment acquired are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. The depreciation methods and periods used by the Group are disclosed in note 7(a). Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When revalued assets are sold, it is Group policy to transfer any amounts included in other reserves in respect of those assets to retained earnings. 25.g) Intangible assets Software Costs incurred in acquiring software and licenses that will contribute to future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Amortisation methods and periods Refer to note 7(c) for details about amortisation methods and periods used by the Group for intangible assets. Pioneer Credit Limited 30 June 2016 Page 94 Notes to the consolidated financial statements Goodwill Goodwill is measured as described in note 7(c). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised but it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level at which goodwill is monitored for internal management purposes. 25.h) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. 25.i) Borrowings All borrowings are initially recognised at fair value which is usually their principal amount, net of directly attributable transaction costs incurred. Subsequent to initial recognition they are measured at amortised cost using the effective interest rate method. Interest is recognised using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates. Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. 25.j) Provisions Provisions for legal claims and make good obligations are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as an interest expense. 25.k) Employee benefits Short term obligations Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave expected to be settled within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. Pioneer Credit Limited 30 June 2016 Page 95 Notes to the consolidated financial statements Share-based payments – Chairman’s Options The grant date fair value of equity-settled share-based payment awards granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service conditions at the vesting date. 25.l) Contributed equity Ordinary shares are classified as equity. 25.m) Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing:  the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary shares  by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year and excluding treasury shares. Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account:  the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares; and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.  25.n) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated balance sheet. Cash flows are presented on a gross basis. 25.o) Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 relating to the ‘rounding off’ of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Pioneer Credit Limited 30 June 2016 Page 96 Notes to the consolidated financial statements 25.p) Impairment of assets Goodwill and intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non- financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. 25.q) Leases Leases of property, plant and equipment where the Group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset's useful life or over the shorter of the asset's useful life and the lease term if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classified as operating leases (note 16). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Pioneer Credit Limited 30 June 2016 Page 97 Directors’ declaration In the Directors' opinion: a) the financial statements and notes set out on pages 37 to 97 are in accordance with the Corporations Act 2001, including: i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and ii) giving a true and fair view of the Consolidated Entity's financial position as at 30 June 2016 and of its performance for the year ended on that date; and b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and c) at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed Group identified in note 22 will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in note 22. Note 25(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of Directors. Keith John Managing Director Perth 19 August 2016 Pioneer Credit Limited 30 June 2016 Page 98 Independent auditor’s report To the Members of Pioneer Credit Limited Report on the audit of the financial report Our opinion In our opinion: The accompanying financial report of Pioneer Credit Limited (the Company) and its subsidiaries (together, the Group) is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the Group’s financial position as at 30 June 2016 and of its financial performance for the year then ended, and b) complying with Australian Accounting Standards and the Corporations Regulations 2001. What we have audited The Group’s financial report comprises:       the consolidated balance sheet as at 30 June 2016 the consolidated statement of comprehensive income for the year then ended the consolidated statement of changes in equity for the year then ended the consolidated statement of cash flows for the year then ended the notes to the consolidated financial statements, which include a summary of significant accounting policies, and the director’s declaration. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial report section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. PricewaterhouseCoopers, ABN 52 780 433 757 Brookfield Place, 125 St Georges Terrace, PERTH WA 6000, GPO Box D198, PERTH WA 6840 T: +61 8 9238 3000, F: +61 8 9238 3999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation. Our audit approach Overview Materiality  For the purpose of our audit we used overall group materiality of $686,350, which represents 5% of profit before tax of the Group Audit Scope  We conducted an audit of the Group, which is comprised of Pioneer Credit Limited and its subsidiaries Key audit matters 1. Accounting policy of recording purchased debt portfolios (PDPs) at fair value 2. Estimating the fair value of PDPs 3. Borrowings Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to provide reasonable assurance about whether the financial report is free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall group materiality for the financial report as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial report as a whole. Overall group materiality We determined overall group materiality to be $686,350. We applied this threshold in:   planning and performing the audit evaluating the effect of: identified misstatements on the audit, and uncorrected misstatements, if any, on the financial report.  forming our opinion in the auditor’s report. How we determined it 5% of profit before tax of the Group Rationale for the materiality benchmark applied We chose profit before tax as the benchmark because, in our view, it is the metric against which the performance of the Group is most commonly measured, and is a generally accepted benchmark. We selected 5% based on our professional judgement noting that it is also within the range of commonly accepted quantitative thresholds for audit purposes. Pioneer Credit Limited 30 June 2016 Page 100 Audit scope As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial report. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including, among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial report as a whole, taking into account the management structure of the Group, the Group’s accounting processes and controls, and the industry in which the Group operates. As described in the Directors’ report, the Group is a financial services provider to customers across Australia, specialising in acquiring and servicing retail debt portfolios as well as broking and introducing retail credit products. The accounting processes are performed by a group finance function at the head office in Perth. We performed most of our audit procedures at the Group head office. We ensured the audit team included the appropriate skills and competencies required for the audit. We also used specialists in tax and experts in actuarial and valuation of assets in the course of the audit. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report for the current period. We have communicated the key audit matters to the Audit and Risk Management Committee, but they are not a comprehensive reflection of all matters that were identified by our audit and that were discussed with the Committee. In the following table we have described the key audit matters we identified and have included a summary of the principal audit procedures we performed to address those matters. The key audit matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that context. Pioneer Credit Limited 30 June 2016 Page 101 Key audit matters How our audit addressed the key audit matters Under Australian Accounting Standards, the policy is permitted if the Group manage their portfolio and evaluate performance on a fair value basis. We read Pioneer’s documented risk management and investment strategy and Pioneer’s internal management reporting to the Board on PDPs. We found the accounting policy choice was consistent with the Group’s management of their portfolio and evaluation of performance. As explained in note 6(b), the method for estimating fair value at 30 June 2016 was tailored for different components of the PDP asset. The three methods were: A. Statistical regression analysis and discounted cash flow modelling B. Comparable market rate analysis C. Cost Our audit procedures differed depending on the method used and are described below. 1. Accounting policy of recording purchased debt portfolios (PDPs) at fair value As explained in note 6, Pioneer Credit Limited have a policy to account for PDPs at fair value, with movements in the fair value recognised in profit. There is industry divergence in accounting policies on PDPs. Some entities within the industry use an alternate accounting policy of recording the PDPs at amortised cost. The use of this accounting policy is a key audit matter due to the significant impact on profit and the relative size of the PDPs in comparison to the remaining items on the balance sheet. 2. Estimating the fair value of PDPs As explained in note 6(b) complexity arises in estimating the fair value of the PDPs due to:   the nature of unsecured retail debt portfolios, which have many factors impacting value, such as: how the debt was originated and by which financial institution; the quality and depth of information on the customer; how much time has elapsed since a payment was made against the account; amount due; the personal circumstances and character of the customer; the current and forecast economic environment; and the quality of the operational model and servicing platform the lack of quoted market prices meaning there is a need to use alternative techniques, including sophisticated models, to estimate fair value. This process has a material impact on the profit and balance sheet and is inherently subjective, meaning it is a key audit matter. 2A. Statistical regression analysis and discounted cash flow modelling Our audit procedures, assisted by PwC actuarial and valuation experts, had a particular focus on: This valuation approach is for PDPs where liquidation is expected to be through receipting cash from the original customers. The Group’s process for these PDPs at 30 June 2016 was different to 30 June 2015 due to the use of new models. Pioneer engaged an external consultant in statistical regression and predictive analysis modelling to assist them in developing the models used for 30 June 2016. As explained in note 6(b), the models use regression analysis, designed to predict the timing and amount of future uncertain cash flows across PDPs based on analysis of historic data snapshots collected. The output from Pioneer’s statistical regression analysis model is a series of estimated future  Model design – whether the structure of the model is appropriate for determining the fair value of the PDPs  Model inputs – testing the accuracy and completeness of the information used within the model  Evaluating model outputs – assessing the estimated fair value of the PDPs with a view to corroborating model outputs. Model design We performed the following procedures, amongst others:  Compared Pioneer’s model design to other models that predict cash flows across a range of industries Pioneer Credit Limited 30 June 2016 Page 102 Key audit matters How our audit addressed the key audit matters monthly cash flows from groups of customers. These cash flows are adjusted for the Group’s assessment of modelling risk and discounted to present value. Modelling risk is explained in note 6(b) to the financial report. It is significant to the Group due to the inherent uncertainty of predicting future cash flows based on limited historic information. The key judgements involved in estimating fair value under this method are the discount rate and the timing and amount of cash flows from customers. 2B. Comparable market rate analysis This valuation method is applicable for PDPs where the Group believe that the sale of portfolios may    Considered if the model design appropriately included the factors that impact the amounts and timing of cash flows from customers Reperformed the mathematical calculations Considered the adequacy of the scope of work of the external consultant who assisted in the design of the model and whether the external consultant was appropriately qualified to perform the work. This combination of tests gave us sufficient evidence to enable us to rely on the model design for the purpose of our audit. Model input We performed the following procedures, amongst others:     Tested whether the assumptions and predictive factors within the model were consistent with historical experience and wider economic trends Tested a sample of customer characteristics, such as days since last payment and personal information, within the model to source documentation Assessed whether the discount rate used reflected the risks of the PDPs, including comparison of the discount rates used to externally available interest rates for similar products (personal loans, credit cards, etc) Performed sensitivity analysis on assumptions and challenged management on the assumptions that had a significant impact on the valuations. Our testing did not find any significant exceptions. Evaluating model output These procedures were performed to evaluate the model output, subsequent to calibration. We performed the following procedures, amongst others:    Considered if the movement in fair value of the PDPs over a three year period was consistent with our knowledge of the business and industry Considered if the fair value of the PDPs was consistent with historical cash collections achieved, particularly for PDPs that had been held for a relatively shorter period Recalculated the fair value at 30 June 2016 using the superseded model used by Pioneer to calculate fair value at 30 June 2015. We analysed key differences to identify if there were other factors that should be taken into account for the 30 June 2016 model or process. The model remains sensitive to the inherent uncertainty of predicting future cash flows based on limited historical information. We tested the consistency between a sample of PDPs valued on this basis and recent market transactions of PDPs in respect of: Pioneer Credit Limited 30 June 2016 Page 103 Key audit matters How our audit addressed the key audit matters deliver more value than receipting cash from customers over time as indicated by the statistical regression analysis in 2A above. The fair value is the estimated sale price in the secondary market for these PDPs. The key judgements involved in estimating fair value under this method are considering if the PDPs held under this valuation method are comparable to recent secondary market transactions and estimating the price for PDPs in the secondary market.   the estimated sales price the underlying characteristics of the PDPs impacting fair value (typically information available on the customer). We found that the PDPs were value was consistent with this pricing information adjusted for additional risk as necessary. We considered whether the fair value appropriately reflected any recent significant changes in the secondary market. No exceptions were identified. 2C. Cost This valuation method is applicable for PDPs acquired within the three months prior to 30 June 2016. The basis for estimating fair value under this method is the assumption that the price paid for the PDP was fair value at the recent acquisition date. The key area of judgement is whether there has been any significant market or external changes in the period to 30 June 2016 that would impact fair value. We agreed the carrying costs of a sample of PDPs that are held at cost through to underlying purchase contracts and tested that the sample PDPs had been purchased within the 3 month period before 30 June 2016 via a competitive tender process. No exceptions were identified. We also tested a sample of PDPs at cost to assess any cash liquidations or customer contact points made within the 3 month period before 30 June 2016. Significant cash receipts or customer contact points can indicate that cost is no longer an appropriate proxy for fair value as the fair value may have changed significantly since purchase. No such instances were noted in our sample for PDPs held at cost at 30 June 2016. We obtained confirmations from the Group’s banks to confirm all significant borrowings, including amounts, tenure and conditions. We read the most up-to-date agreements between Pioneer and its financiers to understand the terms associated with the facilities and the amount of facility available for drawdown. Where debt is regarded as non-current, we tested whether the Group has the unconditional right to defer payment such that there were no repayments required within 12 months from the balance date. 3. Borrowings The purchase of new PDPs is typically funded through a combination of available cash generated through operations, capital raising and borrowings from financial institutions. At 30 June 2016, Pioneer had a borrowing liability (current and non-current) of $53.4 million representing 85% of total liabilities. Borrowings as a percentage of the total PDP asset is 48% at 30 June 2016. The borrowings are under agreements with terms and conditions as detailed in note 6(d). Given the size of the borrowings balance and the importance of the capital structure for continued growth, the accounting for the Group’s borrowings is considered a key audit matter. Other information The directors are responsible for the other information. The other information comprises the other information included in the Company’s annual report for the year ended 30 June 2016, but does not include the financial report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon. Pioneer Credit Limited 30 June 2016 Page 104 In connection with our audit of the financial report, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:  identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;    obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors; conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are Pioneer Credit Limited 30 June 2016 Page 105 inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern;   evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation; and obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report for the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the remuneration report Our opinion on the remuneration report We have audited the Remuneration Report included in pages 16 to 31 of the directors’ report for the year ended 30 June 2016. In our opinion, the Remuneration Report of Pioneer Credit Limited, for the year ended 30 June 2016 complies with section 300A of the Corporations Act 2001. Pioneer Credit Limited 30 June 2016 Page 106 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. PricewaterhouseCoopers William P.R. Meston Partner Perth 19 August 2016 Pioneer Credit Limited 30 June 2016 Page 107 Shareholder information Shareholder information The shareholder information set out below was applicable as at 8 August 2016. Distribution of equity securities a) Analysis of numbers of equity security holders by size of holding Holding 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Holders 346 334 188 334 52 1,254 Ordinary shares 186,562 909,046 1,511,966 9,967,098 36,956,396 49,531,068 There were zero holders of less than a marketable parcel of ordinary shares. b) Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name Avy Nominees Pty Limited Banksia Management Pty Limited BNP Paribas Nominees Pty Limited National Nominees Limited BC Fund II Pty Limited J P Morgan Nominees Australia Limited BNP Paribas Noms Pty Limited RBC Investor Services Australia Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Midbridge Investments Pty Limited Niribi Pty Limited Sharlin Nominees Pty Limited Hoperidge Enterprises Pty Limited Coolah Holdings Pty Limited James Arthur Singh & Kristy Nicole Milward Carol Vines Escor Investments Pty Limited Citicorp Nominees Pty Limited Stephen James Lambert & Mrs Ruth Lynette Lambert & Mr Simon Lee Lambert Peter David Wade Ordinary shares Number held Percentage of issued shares 6,860,656 5,612,634 3,022,231 2,364,779 2,033,915 1,778,565 1,450,000 1,447,177 957,348 924,030 630,935 551,983 545,000 500,000 453,943 450,574 412,500 411,395 400,000 13.85% 11.33% 6.10% 4.77% 4.11% 3.59% 2.93% 2.92% 1.93% 1.87% 1.27% 1.11% 1.10% 1.01% 0.92% 0.91% 0.83% 0.83% 0.81% 318,722 0.64% Pioneer Credit Limited 30 June 2016 Page 108 c) Unquoted equity securities Name Michael Smith Name Mr Keith R John Name Employee Incentive Plan d) Substantial holders Substantial holders in the Company are set out below: Name Mr Keith R John Banksia Capital Discovery Asset Management OC Funds Management Securities subject to voluntary escrow Escrow ends 1 May 2017 6 July 2018 6 July 2019 e) Voting rights Shareholder information Options Number held 300,000 Percentage of issued shares 100% Indeterminate rights Number held 150,000 Percentage of issued shares 100% Performance rights Number held 950,000 Number of holders 11 Number held 8,454,571 7,646,549 4,469,408 3,660,000 Percentage of issued shares 17.07% 15.44% 9.02% 7.39% Class Ordinary shares Ordinary shares Ordinary shares Number of shares 35,629 68,617 90,830 At a general meeting of shareholders; every shareholder entitled to vote may vote in person or by proxy, attorney or representative; on a show of hands every shareholder who is present in person or by proxy, attorney or representative has one vote; and on a poll every shareholder who is present in person or by proxy, attorney or representative has one vote for every share held, but, in respect of partly-paid shares, shall have a fraction of a vote for each partly-paid share. Pioneer Credit Limited 30 June 2016 Page 109 

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